Markets and Clearing Prices

Last saturday night in NYC was a bit of a moment for Uber and their surge pricing mechanic. Most people were seeing 3x-5x in manhattan for most of the night and there were reports of 10x for some people.

There was a snowstorm, people were out at holiday parties, and there was more demand for rides than there were cabs. So in some sense the market worked and rides went to those who were willing to pay the most for them.

The next day Mo Koyman tweeted about it and one of the larger twitter conversations I have seen developed.

Today my partner Albert wrote a post about it and noted a couple issues with the way surge pricing works and the way the urban transportation market works. He also points out that the best way to get around NYC is the subway, which is how I got home from a holiday party last night around 10:30pm. I love the subway a lot more than I love any other form of transportation in NYC.

However, this is an interesting discussion because it points out that as markets/networks (Uber) replace hierarchies/bureaucracies (the TLC), we are running into issues that are going to have to work themselves out over time. As Albert points out in his post, the current yellow cab fare model is even more flawed than Uber's surge pricing model. Ideally we will see more supply emerge and a real marketplace structure develop in urban ride sharing. Then we may get reasonably priced rides on a wintery and festive night in NYC.

And then, of course, there is always the subway.


Comments (Archived):

  1. kenberger

    here’s a gem from Albert’s post:”during a snow storm an Uber that’s in downtown is not really relevant for someone trying to get a ride in uptown. It is not one market but many local mini-markets. In some of these it is likely that demand exceeds supply at any price level (supply simply doesn’t have enough elasticity). In those instances price increases do more to transfer wealth than to clear the market.”

    1. fredwilson

      He’s a smart guy and a great partner too

  2. Elia Freedman

    When public services go private, we tend to talk about a panachea of good because the profit motive drives down costs. This is a beautiful myth. First of all, it isn’t always true that costs get driven down. The sheer size of public services and their funding model sometimes means that the cheapest cost is the public one. Second, we tend to forget that the profit motive goes up. I don’t know how the government works as I understand profit motive, but I do know that the incentive to charge more goes away. Public transit here in Portland is often the best choice, too.

    1. fredwilson

      Yellow Taxis are privately operated but heavily regulatedWhat is going on here is a market based model is emerging in the less regulated parts of the market and driving down prices and increasing supply and competing with the more regulated parts of the marketMy hope is we see the regulators loosen the restrictions on yellow cabs so they can effectively compete

      1. Bernard Desarnauts

        Very good point which I think was the focal point of another controversy at this year Le Web in Paris.On another note it’s fascinating to see the Uber surge pricing topic becoming such a cyclical news item. For me it shows how much passion Uber as a brand already represents to many of us. We love Uber – it represents to many of us the “new” generation of true consumer brand.

    2. kidmercury

      public funding is very opaque. taxes in nyc are very high. i’m not sure how inexpensive mass transit really is. further complicating the issue is that most cities in the US run a budget deficit, so it is future generations that will be paying for whatever discounts, if any, we enjoy today.

      1. Elia Freedman

        Good point. And, by the way, good to see your name. Maybe I’ve just missed your posts but seems like I haven’t seen you around lately.

  3. jonwerbell

    don’t forget about the bus. great way to travel at night as its much quicker and usually empty (at least the routes I take) – and if you need a special stop from 10PM to 5AM, you can ask the driver (never tried it but really nice policy of the MTA).

    1. fredwilson

      I never take buses. They are subject to the same traffic as cabs

      1. pointsnfigures

        I take the bus in Chicago. But, our traffic is far different than Manhattan’s traffic.

        1. Brandon Burns

          Yeah, Chicago traffic is worse.That said, in non-rush hour, Chicago’s express busses rule.

        2. kidmercury

          chicago’s subway system is also not as well developed as new york’s. while nyc subway can get you anywhere in the city, sometimes in chicago the bus is the most logical route, because the subway isn’t developed enough.but nyc is still an expensive place with trash on sidewalk and rats in stores in broad daylight, so please do not my comment get in the way of good ol’ nyc bashing 🙂

          1. fredwilson

            rats on the west side, bed bugs uptown 🙂

          2. ShanaC


      2. Salt Shaker

        Buses are flat rate, while cab pricing, to a point similar to Uber, shifts by variables such as time of day, accidents, weather, traffic patterns, etc. I love mass transit for efficiency and people watching; it’s where I can appreciate most NYC is indeed a melting pot!

      3. Cynthia Schames

        But your phone works in a bus, and they’re climate-controlled.

        1. fredwilson

          no voice calls on the subway is a feature not a bug 🙂

      4. James Ferguson @kWIQly

        And about 5% of the emissions per person ! So @fredwilson:disqus – not worried about climate change? – not someone who Sandy washed out I guess.It won’t be someone else’s problem forever regardless of your wallet.

        1. fredwilson

          buses are better than the subway in terms of carbon emissions?

          1. James Ferguson @kWIQly

            @fredwilson:disqus – Ok Hands Up – My mistake !I read that as “I always take cabs” – rather than “I stick to subway because “buses are as bad as cabs”.Sometimes a snippet out of context is enough to fan flames – sincere apologies and have a good break over the festive season.!

    2. Richard

      And the trolly.

  4. JimHirshfield

    At what point does market surge pricing equal gouging?10x for a car ride during the holidays is OK. 2x for gallon jug of water during a hurricane is illegal.

    1. Aaron Klein

      I understand the motives behind the argument. But my understanding is that Uber doesn’t keep a dime of the surge price. It all goes to the (typically blue collar) driver.Uber can see on the network when the drivers are at home sitting out a hurricane. The price is supposed to bring them out.So are no cars truly better than expensive cars?

      1. JimHirshfield

        Doesn’t matter who gets the ill-gained proceeds. Still smells like gouging.On your other point, I don’t think this is an issue of no cars. Smells more like same number of cars, more potential passengers.

      2. ErikSchwartz

        Let’s not conflate the blue collar driver in the front seat and the car operator (the driver’s employer). Sometimes they are the same but more often they are not.

    2. mikenolan99

      My thought is that gouging relates to necessity – that charging $11 a gallon for Coca cola is ok with the market, but $4 gasoline makes headlines…

      1. JimHirshfield

        Who judges what is a necessity?

    3. pointsnfigures

      There is no such thing as price gouging. Customers aren’t mandated to pay. They could have chosen alternative forms of transportation (Subway, bus, walk)

      1. Jim Peterson

        Try that line of thinking on a large group of loyal customers!

        1. PhilipSugar

          I agree. People really don’t like to feel they are getting “ripped off” Uber can do what they want but you have to think that they are burning up some brand equity if people think they are getting “ripped off”. I put in quotes because getting ripped off is a perception and right now from the press the majority of perception is that they are getting ripped off. Your customers perception is your reality. The customer is always right or they are not a customer. I would think about the end of that sentence.

          1. Dale Allyn

            I agree with your point here and elsewhere in this thread, Phil.People accept “regular price” even if it’s a bit high at peak times. They like a bit of discount or incentive such as “happy hour” or “early bird specials” where businesses provide discounts to incentivize during off-peak periods or to attract new customers. Doing something similar when there is less demand for drivers or more supply could do a lot toward building loyalty and a tolerance for paying certain premiums during special high-demand periods. “Prestige gouging” is off-putting and will turn some customers away for some time to come.

          2. PhilipSugar

            Yes we can wax about economic theory. We can say isn’t this great for me when I’m trying to get back to the Regis after a white tie party with my wife. But bottom line you can tell this pisses people off. Sometimes you have to drop the theory and listen to your customers

          3. Rohan

            Agree, Feels like a bad long term move – like Facebook’s privacy update changes..

          4. JimHirshfield

            I agree!

        2. JLM

          .Wouldn’t they quickly become FORMER customers and folks talking smack about you immediately thereafter?Customer loyalty is earned and must be husbanded.JLM.

          1. JimHirshfield

            Amen, JLM.

      2. Richard

        Not exactly, Uber drivers are not permitted to offer their services to you outside of the Uber network.

        1. Aaron Klein

          You realize all the extra money goes to the drivers, and not to Uber, right?

          1. Richard

            But how much control do Uber driver’s have to scale their and availability? Not that much.

          2. Jay Bregman

            How do we know this exactly? Isn’t that the point? If a margin premium is involved then it pays to keep supply lower than optimal.

          3. Aaron Klein

            When surge pricing first started, that’s what they publicly stated: Uber’s profit didn’t change, it all went to the driver. The point was bringing more drivers out to create more supply.First, we don’t know how that has changed. And second, it’s hard to argue that with 10X surge, they’re not more focused on reducing demand to meet supply.Either way — I still say the big problem is customer consistency. This has not been a problem for me, but I know not to rely on Uber during any peak period.

      3. LE

        price gougingGouging is just one of those words that is bandied about to cast a negative on something regardless of the circumstances.Mainly comes from people who feel it’s unfair to have to part with more of their money when they haven’t been convinced of value. Or the people who are in charge of protecting them reacting to group whining.All those watch ads in the WSJ for luxury brands? Nobody ever calls that gouging because they are convinced that there is value in what they are spending money on.

        1. JimHirshfield

          What @JLM:disqus said.You’re just trying to redefine the word “gouging”.#FlagOnThePlay

          1. LE

            If you’re not trying you might as well not be playing, eh?

          2. Donald E. Foss

            There is redefining a word, then there is taking emotion out of a discussion, trying to make it more rational. Since I would take the subway ANY day over a cab if I could, I don’t know that I’m due an opinion on this specific sentence, but throwing around emotive terms usually means that there isn’t good logic behind one’s reasoning.

          3. JimHirshfield

            Was I using emotive terms? ;-)Or were you directing that at @LE

          4. Donald E. Foss

            Both really. Agreeing with LE about terms that are used and to you Jim that redefining terms can be useful when having a rational conversation.

          5. JimHirshfield

            Thanks for clarifying. 🙂

      4. JLM

        .Of course there is such a thing as price gouging.Hell, NY State has a specific law which prohibits it.…This utterance by the Attorney General is clear. The imprecision of it all is fact driven.It specifically applies to the livery business and outlines standards which ultimately devolve to the notion of a fact based “gross disparity”.It is not even a close call that such a legal standard exists.The better question might be — should it exist? But I think that ship has sailed.JLM.

      5. JimHirshfield

        Just because they’re not mandated to pay, that does not mean the price is okay.#commentpoetry

    4. falicon

      I was at the ’99 Woodstock (… )…price gouging was a large reason behind a lot of the pushback and troubles that came about (not the only one of course, but certainly a BIG factor).It’s all good until the people revolt.

      1. JimHirshfield

        Yeah, that sounds like a break in the spirit of the event.

    5. LE

      2x for gallon jug of water during a hurricane is illegal.That’s just politicians pandering to the common man.It’s funny but by the way laws are written I’m sure if you kept all your prices the same but then charged $10 to enter the store as a fee that would fly because there is no law preventing that specifically. Or some variation.

      1. JimHirshfield

        That’s called a buying club – pay to become a member and get discounts.

        1. LE

          Except that there are clubs that you join also to simply be able to spend time there (or buy). For example a country club.There isn’t a system that can’t be gamed one way or another if someone is creative enough.Back in the 70’s Nixon didn’t want anyone to give raises because of inflation. So what some people did was merely give the person a new job title and/or trivial extra responsibilties. With a new job title they could get a raise because it was “different”. (Source: My memory of what my father did at the time).…The problem with laws is that laws have no brains. Obviously a guy who rents a truck to bring generators into an area should be able to sell them for whatever the market will bear.

    6. James Peterson

      I guess that point comes when the product is a necessity – I’m hardly disappointed by temporary increases in market prices on luxuries. So 10x for a cab ride during the holidays is OK if that’s what the market requires – I don’t question that. If the demand increase persisted, more cabs would become available and the problem would sort itself out (but it’s very temporary, so..). On the other hand, I would definitely question even a temporary 10x price increase for a subway ride – what alternative would that leave? Immediate action would need to be taken.Just like (if) paying 2x for a bottle of Coke during a hurricane. If there are plenty of alternatives about and there’d be no need to panic – you can choose to pay 2x, or choose something else. But 2x for a gallon jug of water would leave no alternative. Immediate action would be needed.

      1. JimHirshfield

        So, coke is not an alternative to water in an emergency?In non-emergency situations, isn’t every cab ride a necessity for the passenger-to-be? Is there really a shortage of cabs on the road on Saturday night? Or is this just opportunistic pricing?

        1. James Peterson

          No, Coke is not an equivalent alternative to water in an emergency (unless it’s the only thing about, but really Jim?). No, in non-emergency situations not every cab ride is a necessity for the passenger to be (do you sometimes take a cab ride when you maybe could have walked, or take the subway? Do people you know?). Yes, there really is a shortage of cabs on the road on a Saturday night (try profiting from a cab fleet capable of meeting all Saturday night’s demand, which sits doing nothing all week). No, this is not ‘just’ opportunistic pricing, in the sense of “I’m charging you much more than usual without good reason” – they’re charging a higher price because they have a limited resource, and markets ration according to willingness to pay .

  5. William Mougayar

    Reality is that using Uber is becoming a status symbol. If you can afford it, use it. So, they are charging more, because people will pay more.If the lower end regular taxi fares also go up, then that’s the end of the taxi system as we know it.I predict Hitchhiking will be back in vogue.

    1. Richard

      there are exceptions. I had a back injury earlier in the year, uber SUV was the only way to get around town.

  6. Aaron Klein

    Uber should have the right to use surge pricing if it wants to make supply meet demand.Another startup should be spotting a significant opportunity: competing on consistent user experience.Both approaches can work.

    1. David Semeria

      I think that’s the key point Aaron. At 10x pricing a driver could make more in a hour than in a normal day. So why didn’t the supply react more quickly?

      1. Aaron Klein

        Agreed. If I were Uber, I’d probably cap surge pricing at 2X just to preserve a semi predictable experience for customers. (Probably enough incentive for the drivers you’re going to get.)There’s a reason my local coffee shop is open at 2PM even though it’s practically deserted right then: the consistency drives more traffic at 7am and noon and 8pm.

        1. awaldstein

          Addressed to you @hymanroth:disqus as well.I’m all for letting the market sort itself out but honestly, this benefits who? It’s a supply side strategy to drive more drivers but without some sort of caps, will indeed narrow the market.Sure I’ll take the subway as always but it appears that the consumer actually is the loser here at times. Or maybe what will happen is someone will simply have a cross company app with availability by price and you can choose.Just feels like a mess to me. Understandable but not very workable.

          1. Aaron Klein

            I’m usually a believer that the market can sort that out. Uber loses customers by having surge pricing at all; they lost boatloads from 10x, I’d wager.Not the strategy I’d choose for building a billion dollar business.Who will compete with a consistency strategy? I’m looking at you, Hailo Black.

          2. awaldstein

            Agree. The market will sort it self out by rejecting it.This category interests me as do all the transportation innovations. I simply don’t buy into this.As a consumer its a non starter.

        2. Dale Allyn

          A surcharge can be justified in special situations where drivers are in short supply, but as you say there should be a reasonable cap. It’s really a PR problem AND opportunity. Respecting your client-base and providing them the reasons and benefits of offering drivers the incentives is not rocket surgery. It’s just business. Impressing upon the drivers the importance of being available when the clients need them most is also part of the formula.

        3. LE

          Also because it’s hard to open and close and the cost of staying open is incremental in something that has fixed costs. Plus there are open and closing routines, cleaning and other things that happen (getting food prepared for when people arrive) in the down time. (In retail they might use this time to stock shelves..)(Note that I said “also”).

      2. lonnylot

        I think everyone is assuming that if a driver can make so much so quickly they will keep doing it for as long as they can. It is highly likely that at a higher than normal income in a shorter amount of time and in dangerous conditions they choose to retire for the day and the demand is never met.

      3. LE

        So why didn’t the supply react more quickly?Possible because the drivers decided that the increased probability of damage to their vehicles (resulting in down time to fix and $$ and increased insurance) didn’t offset the potential extra cash.

        1. pointsnfigures

          takes a while to onboard enough drivers. More drivers should try to be an Uber driver now.

    2. fredwilson

      they are not actually using pricing to make supply meet demand. they are using it to tamp down demand. that’s the issue

      1. Aaron Klein

        At 10x, I can’t argue with that point. And that’s a dumb move.

  7. chrisdorr

    I wholeheartedly agree with you about the subway–often the best way to get around NYC. I highly recommend it. Amazing that the people and government of New York thought about it and created it so long ago.

    1. Kirsten Lambertsen

      Makes me wonder, if we needed to build the subway today, would it happen?

      1. Richard

        Yep, subways have been built in DC over the past decade and are being built in LA today.

  8. mikenolan99

    Umbrella prices go up when it rains…Once had a great brainstorm session with my Australian MBA classmates… How about digital displays of pricing on the shelves at your local drug and convenience stores?Prices could change instantly on any product on the shelves… time of day, or weather conditions, etc…Wealthy people walk in? Flip a switch and change the price…Pick up social media Geo location tags and change prices and in store advertising to match people and products.Down to last one in stock? Price changes automatically.Someone must have the patent on this…

    1. pointsnfigures

      There is a bar that charges for beer on supply and demand.…

    2. laurie kalmanson

      that’s happening with point of sale coupons

    3. ErikSchwartz

      It’s called

      1. LE

        Amazon is a good example of what I would call correctly framing your pricing.For example instead of saying “sorry you have to pay $8 to ship that” they say “this is an “add on item” and they don’t even (afaik) give you a way to buy certain small items and pay for shipping.

    4. PhilipSugar

      This was tried by drugstores for sundries. Uber can do whatever it wants. In my experience though people hate getting “ripped off” ten times more than the love getting a good deal. So what they found was people stopped coming and buying the other items. Uber might think about this.

  9. Tom Labus

    Uber needs some competition. A new player would attack them where they are most vulnerable.

    1. pointsnfigures

      Hailo, Lyft, traditional means of getting around.

      1. fredwilson

        sidecar and lyft are prohibited from operating in NYC and Hailo has had trouble with the entrenched interests in the yellow cab market. hailo is making progress but the lack of competition in the ride sharing market is one of the reasons this is happening in NYC

  10. panterosa,

    I agree with the subway as the favorite and best option to get around.Cabs help with cold, tired kids with too much stuff, but holiday traffic has netted me some very pricey rides in the last week. Would have been more with Uber, which is why I didn’t call one, and waited for a yellow cab.

  11. LIAD

    things like the subway – remind me how lucky we are that former generations had the altruism to bequeath us such marvellous things. to take the hit on their taxes to build infrastructure, develop research and such purely for those who came after them.’a young man sees an old man planting a carob tree and laughs at him. ‘don’t you know they take 70 years to bear fruit. you’ll be long gone by then’. the old guy replies ‘just as my ancestors planted for me, so I am planting for generations to come’ – curious what our generation and our industry specifically is planting. the real game-changing advancements of our time that future generations will thank us for. probably things we don’t discuss much here? clean-tech, med-tech etc. one thing i know for sure, it’s not snapchat.

    1. Dave Pinsen

      It didn’t take as long and it wasn’t nearly as expensive to build things ~100 years ago. They built the subways for themselves too.

      1. LE

        It was amazing what could be done with cheap expendable and unprotected labor. Even with no technology.Imagine what the cost would be (prohibitive) if they had to implement 21st century safety standards and pay.

      2. kidmercury

        plus they probably financed it with debt which means future generations (i.e. us) paid for it anyway lol 🙂

        1. aac74

          and we didn’t get to vote on if we wanted the debt, very democratic !

      3. awaldstein

        The original subways were excavated from the street down.Take an army of immigrant labor, and just dig a huge trench.Technology was a shovel.

    2. William Mougayar

      I love carob molasses, as it’s my daily sweetener, but had no idea about the 70 year lag. Now, I have an even better appreciation for it. Thanks LIAD.On a serious note, you’re right that only the passage of time reveals what sticks and what doesn’t.

    3. Frank Fumarola

      Good insight. “The best time to plant a tree was yesterday, the second best time is now.”I think about this every time I hear debate surrounding new mass transit lines, updating transit infrastructure, building separated bus infrastructure, investing in high speed rail, etc. It’s a real shame that the USA is going to be a few decades behind some of the world leaders in the next decade or so.It seems as if people really have lost the ability to think in terms of long term strategies for the economy as a whole and how the government can serve to enable industry. Instead it boils down to “That there train won’t help me!” because people don’t think in terms of the total economy. And people also have lost touch with what they pay in and what they receive in terms of services…

      1. awaldstein

        Feels like too easy an answer in some way.There are new subway being built right now. There are new water tunnels being built as well. In NY.There are simply astronomical projects.I simply don’t buy into the times were better back then dialogue. People work to make money and they also take care of their own.That is still how it is.

        1. Frank Fumarola

          I imagine you are talking about the Second Avenue line? For people not familiar with this project, it has been planned since 1929. A phase of it is planned to be finished by 2016. So almost a century to complete a phase of the project.Estimated total cost in 1929 – $86 millionInflation adjusted to 2013 – $471 millionCost to complete all four phases now – $20-30 billion (and this project has been dramatically scaled back from the 1929 plans)So, even in New York where they are the most progressive about transit (because it’s a necessity) they have still lacked foresight. They increased the cost of this project by 40-60x by foregoing the investment for a century.It’s not rocket science. Infrastructure enables wealth creation. When our best example is New York, which has its own issues, that is scary. Because the rest of the country pretty much just completely ignores infrastructure.

          1. Frank Fumarola

            Because the rest of the country pretty much just completely ignores infrastructure unless said infrastructure is behemoth highways.*

          2. awaldstein

            Thanks for the historical perspective.Hey some people look at numbers, lament and complain, some people see change and trends and rejoice.I”m the later.I live in the shadow of the Freedom Tower and understand political obfuscation and bullshit daily.I also know that as an owner of two street level businesses, equity advisor to a handful of NY startups that it ain’t simple to do business here.But it is so much better in the last decade and it has become the first choice for its potential by thousands of entrepreneurs.NY is not the envy of the country it is the envy of the world as a place that embraces change, the future, technology and quality of life.

          3. ShanaC

            we could use more subways as well between queens and brooklyn. It also isn’t going to happen for this very reason… :/

          4. PhilipSugar

            Really? What do you base that on? I know you probably ignore us in the quaint fly-over states.

          5. Frank Fumarola

            The fact that most cities and towns have non-usable mass transit systems and have even ripped up old transit systems to move towards a more car-centric system.It’s not just “quaint fly-over states” either. You can look at many of the east coast and west coast cities. Los Angeles, Baltimore, etc.

    4. Matt A. Myers

      From my understanding subways were for-profit, privately owned, when most of them were first developed – and then cities bought them? At least that is the case in some major cities.

      1. JLM

        .The history of fledgling subway companies in NYC was one of fraud, corruption and bankruptcy until they were consolidated. It is an interesting read but it was a financial disaster.JLM.

        1. Cynthia Schames

          The history of nearly everything in NYC is one of fraud, corruption and bankruptcy.I still heart NY.

          1. CJ

            Are we talking about NYC or Chicago?

      2. fredwilson

        that’s how they were built in NYC. there is a good book about it that i read a few years ago.

        1. Frank Fumarola

          This is the book I would have suggested, Matt, so I second this!

  12. YonatanM

    Beside the facts that; (1) driving in the snow is more dangerous, (2) any seasonal type business prices fluctuate a lot [though hotel & flight tickets do not go up by 8X, by absolute numbers the change is much more dramatic], (3) same products are being sold for different prices based on location [try buying a bottle of water on the Champs Elysees], (4) …Let us remember that we are talking about cab drivers who had 1 better day, in a very tough job. It’s not like we are talking about Kobe Bryant’s pay-check (that probably only makes him more popular).

  13. pointsnfigures

    I have heard anecdotes about very short cab rides costing $40 or more in the Hampton’s since this kerfuffle about Uber came out. In a basic economics course, hopefully people learn about first, second and third degree price discrimination. The last time Uber customers were outraged was NYE. They jack up prices that evening because there is demand. As Fred points out, cabs are heavily regulated. The answer is to loosen regulations on cabbies and allow more competition. Supply will meet demand in a free unfettered market.

    1. LE

      “jack up prices”Now now. The use of “jack up” is being judgmental. Everyone is allowed to make a buck when they can.

      1. pointsnfigures

        sorry about the semantics of the words. I don’t have a problem with anyone charging what the market will bear.

  14. laurie kalmanson

    there’s probably a niche for a brand that’s Guaranteed to Raise Prices Geometrically with Demand, but I don’t want to be their customerprofits are good; charging as much as you think you can wring out of people, not so muchrelated: curious to see what happens if they build enough market share so that they have more supply than demand, then what?

  15. ErikSchwartz

    Uber’s business is predicated on getting cheap access to an underutilized resource and making money on the difference while the owner of the resource takes the downside risk of having an expensive piece of capex sitting idle.Black car services own more cars than they need during slow times in order to have enough cars for surges. Uber helps them monetize the lulls. But when there are not lulls, when demand is high Uber can’t get their discounted rate and is buying the service at full retail price and reselling it to you (with a markup).Uber is not a car service, they are a car service broker. They have not fundamentally disrupted the problem of peak/average economics in the transportation business.+1 on the subway. That and walking covers 99% of my transportation needs in NYC.

    1. awaldstein

      Great comment.So unlike CitiBike and ZipCar which are bike and car services, yes Uber is not.In your opinion then can a service be built where the supply of cars (or anything) is not owned by the service itself?

      1. ErikSchwartz

        Sure. There are lots of broker companies like Uber. I just do not think they are multi-billion dollar companies.

        1. CJ

          I think that depends entirely on the difference between supply and utilization.

    2. Jay Bregman

      Not in NYC. In NYC they have a registered base and their drivers (should) be doing trips only for them. In NYC they are actually a car service – and now they’re even providing the tools of the trade (cars) too….

  16. Richard

    Do we really have a market place with uber? Do drivers bid on my fare? A better model would be a reverse auction with a few tweaks.

    1. markslater

      i have no idea why people call this a marketplace. Its a utility – there is no liquidity in this model in the traditional sense. No one is bidding on my requet for service….

  17. Brandon Burns

    If you look at it like a human, instead of an enterprising business person, the yellow cab model is not the most flawed; as far as pricing is concerned, it’s the most perfect.I can get in a cab and always know my fare is X dollars times Y distance. Fair. Reliable. Trustworthy.I whip out Uber and never know what I’m going to get. Unfair. Unreliable. Untrustworthy.Name one of the world’s biggest companies that got there via predatory pricing and unfair customer relations. Oh wait, none. And if Uber keeps it up, they won’t be the first.

    1. Aaron Klein

      I’m confused. How is it “unfair?” Is Uber at 1x price now a universal human right?(We’re totally in agreement that it’s unreliable and untrustworthy. And rewrite your last sentence to “got there by being unreliable and untrustworthy” and we’d have total agreement.)

      1. Brandon Burns

        You have a point.Its not unfair in the true sense of the word, though normal folks probably see it as such. “$250 for a ride in the snow? So unfair!”

        1. Dale Allyn

          “$250 for a ride in the snow? So unfair!”Should have called “AAA” and told them the car was buried in the snow (it’s a really short car ;). The tow truck driver would’ve gotten them home for a fraction of the cost. 😉

        2. LE

          “$250 for a ride in the snow? So unfair!”People criticized and couldn’t figure out why Bloomberg didn’t rush back when that train derailed a few weeks ago. They were clueless and didn’t understand why a (um lame duck) politician didn’t stop his golf game on the spot. Wow I mean they really think that politicians march in parades and kiss babies because they like to. People are really that stupid and naive.

          1. Brandon Burns

            “People are really that stupid and naive.”Yep. But that’s reality!

      2. Salt Shaker

        Maybe it’s not “unfair,” but it certainly is bad biz.

        1. LE

          If it’s bad biz it’s because the context and rhetoric that it is presented in is incorrect and the reality distortion field hasn’t been modified to make people bogu without complaining. As they say “thank you sir may I have another”.Words matter. They simply need to do a better job of communicating why the pricing is the way it is.When there is a big legal case they use mock juries to refine their arguments. I would call this “selling ice to an eskimo”. Put the effort in before throwing in the towel on the pricing differential is what I say.

  18. Mo Koyfman

    Firstly, I absolutely love Uber. It is simply one of the best services I have ever used. And I think it has the chance to literally become a utility, which is exactly why I pointed out my problem with how they are doing and communicating surge pricing right now.My problem with the way Uber does surge pricing, confirmed by every Uber driver I’ve spoken to since Saturday, is that while they claim those ungodly 10x surges are to stimulate supply, it’s all about demand mitigation. The drivers literally have no idea what the surge prices are at any given moment and their behavior of whether to come out to drive or not does not change dynamically. They know they are making ‘more money than usual’ so they continue to drive, but this is by no means a perfectly efficient market. Not even close. I would bet that 2 – 3x would clear the market in a heartbeat if it was communicated properly to drivers ahead of the inclement weather.So in those instances, because Uber doesn’t want to show ‘no cars available’, they are simply taking it from those willing to pay the most…and not being honest with them about why. And if Uber just owned the fact that they are pushing pricing to mitigate demand, not supply, and did it in plain english, that would be much better. It might not be the way I did it, but at least they would be communicating straight with their customers.I think Uber’s approach and communication around surge pricing hurts their brand with consumers and therefore potentially their business long term. Even worse than not having enough cars sometimes to satisfy demand, which people are already used to from every other alternative out there.

    1. takingpitches

      Nice comment. Thanks. Even if they don’t know about it in real time so it affects their behavior, do the drivers make 10X or 5X or 3X when the customers are charged that much?

      1. Aaron Klein

        It wasn’t long ago that Uber stated that the driver gets ALL of the additional surge price — they take no additional profit.I still think it’s stupid of them to do surge pricing because of customer experience, but if you’re going to do it, be transparent about how much of your network is sitting at home and that your goal with “X surge pricing is to drive Y% of the drives out onto the road.”

      2. Mo Koyfman

        i’m not sure. it’s a great question that i would like to know the answer to.

    2. LE

      I think Uber’s approach and communication around surge pricing hurts their brand with consumers and therefore potentially their business long term.Long term? Nope.Everything I know about general human behavior says that people forget the price and remember the quality of service or whether they got what they wanted for what they paid.In the end UBER will hurt themselves if there is an alternative that is cheaper doing the same thing. Nothing else really matters.Nobody decides not to use an airline because they had to pay 4 times as much for a ticket because they had to fly last minute or during a peak holiday period. But they do (irrationally in my opinion) say they won’t fly again if they are treated badly by the clerk, lose luggage or something like that. Same with hotels. Same with rock concert or stadium seating. People care about the service and experience not the price paid.As far as presentation or communication it might be a good idea (since everyone seems to be concentrating on the “x” of all of this) to simply state pricing in a more creative way. For example in a snowstorm there could be a “storm surcharge”. Then normals would have an easier time understanding why they are paying more.We offer a service and were able to get more for the same service by simply stating a turn around time as “normal” (no surcharge) “rush” (surcharge) and “super rush” (big surcharge). People who need the “super rush” have never complained when they are able to feel as if they are in control and making the proper decision. (This was, as I like to say, a way of creating money out of thin air AND having customers thank you as well).

      1. Mo Koyfman

        the reason it could hurt them long term is because it lets Lyft or someone else with a more consumer friendly approach come into their turf.

        1. LE

          The sea is a terrible mistress.By that I mean people have short memories when there is little friction to changing (in either direction).We are not talking about something where if they go with lyft they are signing some contract and not able to choose another option for a time period.Or even cable service where there is some friction for changing.Or something which is primarily a habit. Like if I get a bad meal from the chinese takeout and find a new takeout it’s unlikely I will go back to the original takeout. Or the type of soap I buy. Or who cuts my hair. Etc. Or commenting on a particular blog.My point is not that there would be no impact or pissed off customers.But I don’t think it’s anywhere near the clusterfuck that people seem to be thinking that it is.The people online have a big horn making noise. But most normals think what they think and don’t read this stuff anyway.And guess what? If the NY Times decides to write a story about this it will actually bring more business to Uber in the end because more people will know about it. [1] Not to mention even the bloggers and tweeters who are all up in arms bring it free mention. Even bad PR as the saying goes. [2][1] What I call dead bodies on ebay.[2] I remember all the times that Arrington and others complained about twitter being down in the early years. Was like a daily occurrence. All free publicity.

          1. Mo Koyfman

            You’re probably rightBut I’m still going to call them on their bullshit

        2. fredwilson

          lyft and sidcar are prohibited from operating in NYC. if they were allowed to operate here, we might not have seen the surge pricing happen last saturday night

          1. Mo Koyfman

            exactly. if they were permitted to operate, then we’d *actually* see an efficient market.

        3. ShanaC

          i see lyft as a totally different service in a lot of ways. Same with Hailo. Uber is a premium service

          1. Mo Koyfman

            they don’t see it that wayuberX and taxis show that they want to own all local transport

          2. T Lynk

            this is true – uberX will define Uber

  19. Richard

    Uber’s shortcoming is that it uses too little data, not too much data, to determine pricing. What could Uber include in its pricing models? How about the drop-off point and how frequently the user takes this route. Focus of making Uber drivers more efficient and pass some of the savings to the users.

  20. iggyfanlo

    Incredibly ironic that the 1%ers are railing against capitalistic pricing models. Guess self interest always trumps ideology… or maybe in this case, it’s the same thing

    1. LE

      People are incredibly unrealistic and they are cheap. In general.

    2. Jim Peterson

      Maybe some of them became 1% ers by taking care of customers?

      1. iggyfanlo

        Probably. But then they are also educated and experienced enough to understand market economics and letting this trump scarcity for allocation of good and services.

      2. JLM

        .Damn good one. Well played.JLM.

    3. JLM

      .Capitalism is all about competing to deliver a product or service to customers and thereby creating a loyal customer base for future purchases.Capitalism is customer service.JLM.

      1. iggyfanlo

        I agree, but that’s exactly what “surge pricing” is supposed to be… at least in theory… is competition for services, but balancing demand and supply… assuming that is true, you are delivering a product at a FAIR price… I think that buyers just don’t like it when prices go up, only down, which in a world of limited supply is naive, ESPECIALLY for the 1% that are willing to pay for this service

        1. JLM

          .Of course, that completely ignores the legal framework of price gouging which is the law.Uber, et al, want the protection of the law and must operate within the law. Live by the law, die by the law.Take a look at… and see if you are comfortable with Uber’s practices.I am unconvinced that a policy of “hey, we can get away with this, right?” is the same thing as an auction price.Why an auction price mechanism only when the pricing is on the side of the provider.The more simple solution is what I shall do — No Uber for this boy. Ever.JLM.

          1. iggyfanlo

            If Uber is violating or even skirting the law (and quite frankly I have no good information on) then it’s a bad long term business practice and I completely agree with you.Having said that, I believe that customers will generally vote with their wallets… you’ve clearly voted and that will hurt them and other competitors with better practices will fill the void… love competition.. it makes us better…I’d prefer if government focused its energy on “common goods” and regulated externalities that resultedLast thing… we may both be right… and customers are voting to work with other providers… despite their almost $20 MM in EBITDA monthly, I am hearing strong rumors that their market share is cropping in core markets

  21. Kirsten Lambertsen

    This prompted me to understand the history of NYC taxi regulation… here’s what I found…

    1. fredwilson


  22. jason wright

    “surge pricing” – the new price elasticity of demand?this chat had something to say about Uber. Sarah Lacy isn’t feeling the love:http://thisweekinstartups.c

    1. LE

      No time to watch but if she is trashing what happened all I can say is to go try and actually run a business with customers and employees and day to day problems. It’s like someone who doesn’t have kids or isn’t going through a divorce talking in theory.

      1. jason wright

        Travis took a pasting.

  23. Salt Shaker

    Short-sighted and PR nightmare for Uber that will only fuel the clamor for regulatory action. Markets and regulators don’t respond well to predator or usury-type practices. I understand that drivers benefit most from surge pricing, to incentivize on road supply, but Uber corporate should entertain taking a loss on these type of days rather than gouge for nothing else than long-term brand vitality. It’s called good customer service. Gouging is short-sighted and can create irreparable damage to the brand. If I’m the CMO of Uber I’d already be issuing nominal customer credits as a goodwill gesture.

    1. LE

      Markets and regulators don’t respond well to predator or usury-type practices.A price isn’t usury (if you want to call it that) if it can be justified because of the circumstances of the situation.The “regular” price is not relevant when there is “value”. What does it matter if a stick of gum is normally .05 and I have to pay $2.00 for it?What does it matter if the normal cost of a HVAC service call is $125 but if I have no heat on New Years Eve and they want $500 I have to pay that? So what?It’s up to UBER and others to explain clearly why charging more is justified. If they don’t do that then they aren’t doing their job very well. [1]As I pointed out in my other argument there is a risk that the driver and the vehicle take in doing this service in that type of weather that has to be taken into account.[1] By the way if you want to know the difference between a great attorney and a so so attorney that’s the key. Being able to put things in a way that effectively can even make a case where one doesn’t exist. This one should be able to be argued (along those lines) by someone right out of law school.

      1. JLM

        .The notion that an increased price can be justified by a higher cost to provide that service is perfectly reasonable.If you have an HVAC problem on Christmas night and the HVAC company has to provide time and a half for its employees — then the underlying costs are dictating the final price. That is perfectly reasonable.When there is no such argument then that is what flirts with price gouging.Price gouging is illegal in NY.…The notion of a “gross disparity” in the before v after pricing is a fact matter.The facts look pretty bad for Uber.JLM.

        1. LE

          If you have an HVAC problem on Christmas night and the HVAC company has to provide time and a half for its employees — then the underlying costs are dictating the final price. That is perfectly reasonable.If all you were going to do is look at underlying costs then many things that are done pricing wise wouldn’t make sense. We all know that we can sometimes charge for things “just because” and other times we can’t even if justified by costs.Try charging to tap water in a typical restaurant. Waiter has to bring it to your table also. And water does cost something. Cleaning the glasses costs something. And so on. All that de minimis adds up.Not only that but merely looking at hard costs ignores the “pound of flesh” issue.If the businessman decides to pay his employee time and a half then:a) what is the correct profit he is allowed to make on that extra charge? Who decides that?b) Back to the pound of flesh: there were times that I had to get some machine operator in to do a rush job on the weekend. And they were paid 1.5 or 2x (don’t remember). But in addition to that they then had a “pound of flesh”. They were more likely to want something else in return in the future “Can I have off on Wednesday to go to X Y or Z”. In other words a favor maybe I had to really cajole them to come in. And maybe they then had a fight with their wife [1] and did a bad job on Monday. There is a human element to “sacrifices” such as these. It can’t be reduced to dollars and cents.[1] I had a guy going on vacation with his wife. Normally when he is away he will do work and check in. Knowing his wife might complain I told him to take her to a nice restaurant “on me”. Obviously it worked. She didn’t care if he had to spend some time in a hotel room with him on the computer. If that hadn’t worked I would have just increased the dosage by buying her a gift or something like that.

          1. JLM

            .Everything can ultimately be reduced to dollars and cents — particularly everything you describe in your comment. The math may be a bit subjective but it is just math.The legal issue is this — is there a “gross disparity” in the before v after pricing when one encounters an “abnormal disruption of the market” like a snowstorm?Would one think that $35/minute and a $175 minimum ride price to be a “gross disparity”?Folks are acting like this is not a real legal issue.NY has a state statute which is pretty damn clear on the issue.…JLM.

          2. LE

            Agree in part deny in part.Particularly that Uber couldn’t find a way to show that it was necessary to reward the drivers for the increased risk of driving in a snow storm for one thing. (My other comment regarding car damage and accidents).I don’t know about you but I’m not taking a valuable vehicle out into the center of the city when it’s snowing. Would you?

          3. JLM

            .No, I would drive my pickup. Hey, I live in Texas.If God had intended Texans to drive in the snow, He would have made bullshit white, no?JLM.

          4. LE

            Damn, I’m striking out left and right here.I said:but I’m not taking a valuable vehicle out into the center of the city when it’s snowing. Would you?You said:No, I would drive my pickup. Hey, I live in Texas.And as any good attorney knows you never ask a question that you don’t know the answer to.That’s what depositions are for. My error.I’m going to go get some chinese food now.If I only hadn’t put that “Would you?” or had said “take out the big red car in the snow” this might have worked.

          5. JLM

            .Chinese food sounds good to me.That Big Red Car is very bad in the snow because of the rear wheel drive.But it is great fun to drive it in the snow with the top down.Might require a few bourbons and ginger to really appreciate it though.JLM.

        2. LE

          By the way as their defense attorney I would blow right by this stuff:New York’s price gouging law takes effect only upon the occurrence of triggering events that cause an “abnormal disruption of the market.” An “abnormal disruption of the market” is defined as “any change in the market, whether actual or imminently threatened,” that results from triggering events such as “weather events, power failures, strikes, civil disorder, war, military action, national or local emergency, or other causes.”Leg to stand on? Yes. But.We could start by questioning how a small amount of snow is somehow anywhere close to the items mentioned above “hurricane” “power failure” “military” etc. So in other words the words that are used in the law show the intent and a perfect opening by contrast to beat the rap.We could also show a clip of Obama calling Washington DC “weather wimps” for closing his daughters school. [1]”Obama said he would have to instill “some flinty Chicago toughness” into Washingtonians”.We’re talking about a little bit of snow here.[1]

          1. JLM

            .Doesn’t your argument actually favor the prosecution?Uber would stand accused of a “gross disparity” in its pricing and its DEFENSE would have to be that there was an “abnormal disruption of the market” which justified their price gouging.Absent that justification for their price gouging, they are defenseless.May want to re-read the statute. You seem to be favoring the prosecution, no?JLM.

          2. LE

            Hmm. Excellent point!Well, before entering the courtroom I would have thought through that path. I’m normally really good at that. That is thinking ahead of the implications given a particular tack. And anticipating how it might go.Let me give it some thought and see if I can find a way out of that logic.My first way (off the top) would be to simply make that point at the start (so the prosecution can’t spring it like you did) and keep hammering on the contrast points and hope that the jury ignores it.

          3. JLM

            .Hey, LE, there’s a good reason why we are not both lawyers. Always enjoy reading your comments, friend.Best of the season to all.JLM.

  24. Guest

    Uber has the customer trust. Uber is the platform of credibility, dependability and reliability. The catalyst that brings effectiveness and efficiency to both customer and provider. The cab, limo, livery end of the equation – may make or break that trust.If the perception is, if market surge pricing (gouging by most people’s lay definition as JimH points out) is the expectation under the past conditions does Uber become perceived as the tool of the provider instead of the user as well? Does Uber have the power as a growing supplier to dictate better terms on behalf of the rider in such instances? Can constraints be realistically imposed on the cabbies by Uber? Should there be recognition of the behavioral aspects of this event in the people management sense that is as important as pricing models? Seems the same curb and pavement issues of the model have elegantly crossed into app world as well…

  25. Harry DeMott

    Now if you really want to get a conversation going – let’s talk about the issues when a marketplace takes over healthcare from the embedded bureaucracies and I get charged 3X surge pricing because I am overweight and we are no longer artificially pricing out the services.Love UBER – but no one has to take em. Subway is pretty efficient in Manhattan.

  26. ZekeV

    As long as Uber doesn’t have a monopoly on metro transit in the area, then I have no problem with surge pricing. People who don’t want to pay it can choose another mode of conveyance. I would be concerned if Uber ran the table on a city, and then held its denizens hostage to monopolistic pricing. That would be asking for a regulatory smack-down. But in such a competitive market, it’s probably easier to regulate via loosening barriers to entry for private taxi services as opposed to capping prices.

  27. LE

    Mo Koyfman:is loved by customers, but charging 4x – 8x in inclement weather is unacceptable. is that one day’s margin > customer experience?!?Albert:On Saturday evening, close to the height of the storm I had to go to the Upper East Side to pick up one of our kids………even though that meant I had to walk about a dozen blocks in the storm. As an avid skier and lover of snowstorms the latter was just a question of bundling up which I did. ……It is not really effective to ask a taxi driver to work for the same rate at night in a snow storm as on a sunny afternoonAll of the discussion that I am seeing on this misses a few important points. They are relevant for this particular case.a) Driving in a snowstorm is dangerous. Driving in a snowstorm can result in an accident which leaves your car damaged, possibly needing repair, possibly an increase in insurance. Additionally you are out of business until the repair is made. Not to mention the aggravation. Who exactly is responsible for that? Well it’s not the rider it’s the driver. To the rider that’s a “YP” (your problem) not an “MP” My problem. That’s why they don’t give a shit. No understanding or empathy. These guys driving cabs are not living in Manhattan either are they? They have to commute to even get to their jobs and deal with a lot of shit I’m guessing.b) Basic concept in business. Make hay when the sun shines. Business don’t make money every hour of every day. They have to make more money when they can to offset when they don’t make any money at all. And to cover any losses. And if they get sick they collect no money. Like like the guy working for the investment bank or the attorney who has “partners” and disability insurance.c) Businesses deserve to make money. Period. Stop whining because you have to kick in a few extra bucks every now and then. Stop whining because you decided to live in the city and have to pay for a cab. Life is so unfair, right? I don’t live in the city and I don’t have to pay for a cab. I can take a car. Guess what? The snow tires on my expensive car cost $1800. [1] I’m glad I can afford the snow tires. And the car. When I bought the car I didn’t realize that (at least the first time.) I didn’t yell “rip off” I just paid the money. Stop blaming others when things don’t go your way. The other guy is allowed to make a buck.[1] Interesting story. The first model that I bought I couldn’t even get new snow tires since they passed a law in Germany that year and there was a shortage. So I had to buy used snow tires. Imaging buying used tires for a new car. I no longer have that car but I was able to sell the used snow tires on ebay for more than I paid for them when I bought them used.

  28. AnujMathur

    to preface my thoughts, i’m a fan/user of uber and i do like the idea of market-driven pricing. my issue with uber’s current pricing model is that while the company attempts to mimic a “clearing house”, it only partially provides the claimed settlement services for a transaction between a rider and driver.during surge pricing, there can be significant volatility in the surge — i.e. you can see prices go from 3x to 7x in a matter of seconds. during these periods you have no guarantee of ride fulfillment even if your ride request is accepted by a driver at a relatively low surge (3.25x during a period where prices are ~7x) — a driver can always cancel and pick up another ride at a more attractive rate. for a true suppy/demand-driven market to exist, this should not occur.potential solutions? a) penalties for drivers (discourages cancellations); and/or b) lower frequency at which prices fluctuate as real-time rates are not that useful when they aren’t truly guaranteed (less frequent fluctuations in pricing may deter driver cancellations).

    1. Eddie Wharton

      I agree that there is too much volatility in pricing. It would be pretty hard to have cancellation penalties for switching fares – how can you prove they did not do it for a “legitimate” reason. If you did come up with an enforcement system, it would just make drivers wait until they thought they were getting the max price by not picking up someone who only offered a 3.25x in your example until the price just rose to 7x.I think they just need to limit volatility to prevent a bad user experience.

  29. Kasi Viswanathan Agilandam

    🙂 a funny script.Now.Ubba Taxi: I am as pure as 24cr gold … i take only what i always take …I give the rest to drivers.Drivers: Holy Moly … I am a proud Ubba-driver got 9x this time…going to be a loyal driver … may get more next christmas. Will convince my cousins also to sign-up.Users: Ubba seems to be decent … these driver bastards are looting. I like Ubba and going to be loyal Ubba user.After 3-5 years … management and strategic change at UbbaUmma Taxi: I’m doing all the marketing/PR/??? and monopoly I will take the 8x and I am going to give you 2x of what you get.Drivers: Holy shit I am struck with Umma Taxi … well let me take the 2x than sleeping at home.Users: These driver bastards never change.Edit: Ha….Ha…Ha..clap…clap….this program was performed in front of live audience.

  30. Nick Kellet

    Nothing like price inflation to make people rethink how fast they adopt ride sharingIt makes me think of Facebook driving us to share more openly.

  31. LE


  32. BillMcNeely

    Maybe the jury is out on Uber surge pricing but their #UberTREE event propelled Crowdsourced logistics into the mainstream and opened the way for @Shipster in NYC, Boston and Dallas to provide same day delivery of goods!

  33. kirklove

    +100 for the Subway!-100 when you fall asleep on the way home and wake up on 191st instead of 66th.

    1. fredwilson


  34. aac74

    price gouging is charging different people, different prices based on need i.e. the needier you are the higher the price. Charging everyone the market price keeps supply available for the most needy and prevents empty shelves. Those in need get nothing if the price is too low and the vendor has sold out ! No matter how much they beg and plead they get nothing if nothing is available.

  35. Niv Dror

    Travis is following basic economics, surge pricing is what a market mechanism looks like. People still have the option of hailing a yellow cab on a snow covered street. They turn to Uber, so accept the price. Supply and Demand. Why is there no outrage that people are “forced” to pay $1,000 for a Bitcoin only a week ago? Because if they don’t want to buy the Bitcoin, they choose not to. The “theory” applies with Uber.

    1. fredwilson

      the only thing that is more volatile than uber surge pricing on a sat night is bitcoin! nicely done.

  36. matthughes

    At first glance, this reeks of the airline pricing model.We all still fly but would happily find other means of transportation.That can’t be good.

  37. sigmaalgebra

    Assuming really bad weather, e.g., heavy snow, since Uber has computers in the loop and wantsto build brand loyalty, consider: When a customerasks for a cab from Uber, for the really good customers, give them a really good price, maybeeven the same price as on a pretty, Sunday morning.Let the good customer know that their businessis appreciated and that their price is well below’market clearing’ in the snow.Otherwise keep the prices down for any newcustomers if want to make that investmentin attracting good customers.Maybe lower the prices a lot only for the really good, ‘gold’ customers so that, withso few gold customers, the money lost isnot too large and other customers aremotivated also to become gold customers.Make being a ‘gold’ customer like joiningan ‘in-group’.

  38. ShanaC

    I saw that tweet.1) Uber isn’t scalable. It is so not scalable that they are thinking of buying cars2) this is a livery service, not a taxi service and not the subway. It is designed to be at a premium, and surge pricing is a reflection of the luxury of it.3) This was not Sandy – the response of people complaining about walking through some snow (and brisk snow at that, I liked it to a point) just seemed, I dunno, a little bit kvetchball.4) I’m surprised there hasn’t been a move in services similar to uber that are more democratic in nature (the subway is highly democratic in that regard)

  39. jason wright

    at those prices i’d pull Fred through the streets of NYC on my winter sled.

    1. fredwilson

      or we could go for a ride on the subway

  40. Matt Zagaja

    People will always complain about higher prices for things. Uber should just up their base price by 5 and then offer discounts during less trafficked periods and the complaining will go away.

  41. JLM

    .I am normally an unfettered free market capitalist relying upon the wisdom of markets to create appropriate product-price fits. I guess I still am though I am a bit influenced by context and the law.I think there are problems in store for Uber under the law as well as their market perception — a completely different issue.In this instance, it is imperative to recognize that the livery market is a highly regulated market which, in fact, required modifications to the regulations to even allow a company such as Uber to operate in NYC.NY has a statute against price gouging codified as New York States Price Gouging Law (General Business Law § 396-r) — which prohibits price gouging.The law itself applies specifically to taxi cabs and livery cab companies.It does not kick into effect until the occurrence of an “abnormal disruption of the market” such as a snowstorm or a hurricane.The law prohibits an “unconscionably excessive price” when comparing the prices before and after the “abnormal disruption of the market”.The law does not specifically prohibit a difference in price. The law prohibits a “gross disparity” in the before v after pricing particularly when there is no evidence that comparable services — read taxi cab fares perhaps — were similarly impacted.The legal analysis pleads for evidence of increased costs that were simply being passed along to the customer.The notion that this is simply the market meeting to conduct an auction to set prices under changed conditions would be a more sympathetic argument were the issuance of licenses similarly conducted.A livery license in NYC is a valuable commodity — a highly regulated commodity — which has created meaningful value in a single license. There have been only 30K taxi medallions (licenses) for the last 3 decades. The value of a single medallion is now over $1MM.I am not suggesting that Uber holds such licenses. They do not. They are however similarly regulated.If the barriers to entry are subject to such hurdles, then it only seems fair (disregarding the pure legal argument pertaining to prohibited price gouging for a second) that the pricing of the service provided by such regulated behavior be similarly regulated. In fact, for taxi cabs it clearly is, right?Every business transaction is also guard railed by a common law obligation of fair dealing and good faith. One cannot enter into a contract — even an instantaneous at will contract — with a right to be “unfair”.I have not addressed the obvious ethical and character implications of this pricing strategy though you can certainly sense my disapproval.In the end, the consumer will decide. As an example, I am headed to NYC for a bit in January and I would take the “short” on my being in an Uber any time soon.There is nothing as lovely as NYC in a snowstorm. Oh, well.Merry ChristmasJLM.

  42. NICCAI

    Surge pricing feels wrong, but I wonder if there is something to bid pricing? Is it any different? Maybe not, but optically it probably is.

  43. Sollars&Sense

    First World Problems… There’s only a flaw in Uber’s Surge Pricing model IF they are the only transportation game in town. Since they are not. Choose something else. Simple as that… #Makes$ense #FollowTheMoney

  44. babu

    do they reduce the price than normal when the demand is low? if they do than they can justify this else not.

  45. Xavier Faure

    There are three ways to deal with insufficient supply.Violence, queue and price.I don’t know of any fourth one.Price is the only one that can and does increase supply. The other two only decrease demand.Albert Wenger has a point about predictability and price transparency. It’s in Uber’s best interest to improve that, and I’m confident that they will.As for the bad buzz, Uber already suffered severe flak during hurricane Sandy for the exact same reasons. That didn’t prevent them from growing steadily and being loved by customers.You don’t need to be loved by everybody to succeed, you have to be loved by a large enough customer base, even if the rest hate your guts.Political parties have shown the way.

    1. JLM

      .Uhhh, how about increasing the number of taxi medallions from 30,000 as it has been for 30+ years to say 60,000?The winners like to use regulation to put a moat around their regulated enterprise. They really don’t want free market policies, do they?JLM.

      1. LE

        Just thinking out of the box here I would imagine that the taxi owners who had relied on the way the system was, and how it was represented by politicians, would have a leg to stand on to file a lawsuit. All banding together of course. Or at least file lawsuits to delay implementation.And with that lawsuit it’s very possible that they could drag things along and extract some money out of the city. Or maybe not. But there would certainly be an attorney who would take a shot if he could find any justification or legal theory to do so. And dig enough around deep pockets and you can find something. Remember hanging chads?They don’t have to be right. They only need to be able to file a lawsuit and give it a shot.

      2. fredwilson

        medallion owners are the largest contributors to our new mayor. fat chance of that happening. corruption and politics are married to each other.

    2. fredwilson

      uber is using price to manage demand, not supply

      1. Xavier Faure

        But increased price puts more cars on the street or do I miss something?

        1. FAKE GRIMLOCK




  46. William Mougayar

    There’s a silver lining in this key statement “the current yellow cab fare model is even more flawed.” So how about a bid/ask system, where the customer asks for a ride, and taxis/Ubers/Hailos bid on it, and the customer accepts and it gets booked. Or, the customer can submit offers and waits for a first acceptance, “I’m offering $25 for a ride from Union Square to Times Square, but I want it in the next 3 mins.”Maybe that’s the next startup. An Uber of Ubers for scheduling taxis based on a bid/ask system that aggregates everybody. That would level the playing field, and let every one compete that way, based on availability and willingness.

  47. Jim Bumbulsky

    I gave it my best shot here:…I think the way Uber originally presented the surge pricing issue was a bit deceptive, and didn’t quite make sense. I think over the long term it has the ability to attract drivers through word of mouth, but at a moment’s notice it is not that effective.

  48. Semil Shah

    One tangent here is the undercurrent of entitlement among those who use Uber in NYC (or other cities) and just expect it to be priced one way, forever, even in extreme conditions. It’s the sentiment of those consumers, where the subway (as you point out) is right under their nose, that is also alarming.

    1. fredwilson

      yup. hard to cry for the 1%, even when you are one of them.

  49. andrewjude

    Fred what do you love about the NYC subway system? I personally only take a black cab/uber home when it is impossibly late in the day or if I’m in a rush between places.The U.K tube system is brittle but efficient. However the most interesting thing is the number of people you’ll see on any given day. What is everyone’s story? Where do they work? What are their aspirations? etc and so forth. This part is what is often missing from the comfort and luxury of a black cab/uber.

    1. fredwilson

      where do i start? i love its efficiency, i love its art, i love the sea of humanity, i love the diversity, i love the entertainers, i love the price, i love the warmth when it is cold outside, i love the different lines, the letters, the numbers, the car types, the poles and straps, getting from brooklyn to manhattan, getting from manhattan to the bronx, the tunnels, the lights, the switches, the platforms. i summary i love everything about it.

  50. Matthew Wensing

    Coincidentally, I work for a company that helps other companies optimize supply & demand around environmental conditions, specifically weather. What Uber is doing is what we are seeing more and more companies doing, as data allows for higher-resolution everything.It _is_ fascinating how surge pricing is hated in some contexts and totally accepted in others. Super Bowl tickets and commercial air time, hotel rooms, and parking are all a-OK. But nice taxi rides are a no-no? Where do rights end and privileges begin?

  51. Anton

    The interesting part of this uber story (which isn’t unique) is their lack of communication. With great transparency, noone would be upset.Pricing is a lot about communication, especially in a real time service like Uber. In my point of view, they have a lot of work to do there.

  52. bernardlunn

    I am also a big fan of public transport. I like the line – true in Switzerland – that a civilized society is one where even wealthy people use public transport. They will then be happy having their tax dollars pay for public transport and so it will be comfortable, safe and reliable.

    1. LaMarEstaba

      ‘”An advanced city is not one where even the poor use cars, but rather one where even the rich use public transport,” argues Enrique Peñalosa. In this spirited talk, the former mayor of Bogotá shares some of the tactics he used to change the transportation dynamic in the Colombian capital… and suggests ways to think about building smart cities of the future.’TED talk:…”He is president of the board of directors of the Institute for Transportation and Development Policy, an organization promoting sustainable and equitable transportation worldwide.”I agree completely. At one point, he points out that the poor riding the buses are able to zoom past the rich in their cars, stuck in traffic. I used bus rapid transit (what they implemented in Bogota) in Quito, Ecuador and loved it. I like NYC’s subway system as well. Albert’s piece says that people are outraged by $250 for an Uber ride. At those prices, I’d take the 10 block walk to a subway station. I’d probably feel safer, too.

  53. LE

    “John Lennon”How naive that guy was.