Uber, the app-based car service, has been hammered in the press and on social media in the past for raising its prices when demand spikes. Now, a well-funded competitor from Israel called GetTaxi has launched in New York City, and the company thinks it’s coming into that prime market with a competitive advantage: fixed rates. In the era of collaborative consumption, dynamic pricing is one way of making due with less, by distributing resources when and where they’re needed most. Uber says that people just aren’t ready for it yet. GetTaxi is betting that customers just don’t want it.
Launched in Tel Aviv in 2011, GetTaxi is up and running in 20 cities around the world, with major presences in Moscow and London. The company just added $12 million in their latest round of funding, led by the European firm Kreos Capital, on top of the $30 million they previously raised. GetTaxi claims 150 employees and 6,000 cars running on their technology. GetTaxi’s founders, Sharar Smirin and Roi More, are by self-description also the founders of the “Russian version of Groupon,” called Vigoda.ru. Now they’re setting their sights on Uber. What makes them a worthy competitor, they say, isn’t just great technology and good customer service, but “transparent and attractive pricing.”
Base fares are 100% fixed so it’s the same yesterday, today, and tomorrow, going somewhere and coming back. Just an extra $5 during rush hour, so you can relax while you’re stuck in traffic and you’ll never have to worry about surge pricing or hidden charges.
There’s little subtly in who GetTaxi means to bring to mind when it talks of “surge pricing.” The company brags that the rates on their “G-Cars,” as they call them, are constant, “no matter what day of the week or which direction you’re going,” adding, “we only want to surprise you with amazing service, never the price!” A midday trip from Park Slope, Brooklyn, to Manhattan’s Penn Station in an Uber black car is, according to that company’s app, somewhere between $43 and $55. The fare is fairly hidden behind a screen that requires an extra click to get to. On GetTaxi, the fare is displayed on the confirmation screen that pops up after you request a ride. It’s $45.67.
But that’s on a regular weekday. Uber was slammed over suddenly escalating prices on New Year’s Eve in 2011 and again during the devastating Superstorm Sandy last October. During that latter event, fares were reportedly doubled for some customers. There were accusations of price gouging, and Uber rolled back their prices to their standard rate, for a time.
But only for a time. The company argued that the trick to surge pricing was largely to get the public to appreciate that it works in their favor. The could have, they conceded, been a bit better about making the new prices apparent; some customers complained that they didn’t know until the bill came the amount they’ve tallied.
And after that New Year’s Eve, Uber CEO Travis Kalanick reported on the company blog that “the whole experience was at once exhilarating and a bit defeating.” On the one hand, they’d proven to themselves that they knew how to match supply and demand through creative pricing. And they did their best to blog, tweet, and email customers about their model. But on the other, wrote Kalanick, it turns out that “people are simply not used to paying a lot of money for a reliable ride during a run on cars.” The post was accompanied by a mosaic of photos of Kalanick with his head in his hands, the alt tag on which was sad travis.
Still, since, Uber’s doubled down on the idea.
“Without a surge pricing mechanism,” Kalanick has explained, “there is no way to clear the market. Fixed or capped pricing, and you have the taxi problem on NYE—no taxis available with people waiting hours to get a ride or left to stagger home through the streets on a long night out. By raising the price you increase the number of cars on the road and maximize the number of safe convenient rides.”
Indeed, using data to shape the transportation market is very much the point of Uber, as Kalanick sees it. He’s talked about having an in-house team he calls “the math department” one that includes a “computational neuroscientist out of Berkeley” and “a nuclear physicist out of Michigan.” Calculations are very much Uber’s secret sauce. By sucking up as much data as possible, they can figure out the best possible place for their cars to be. They’d argue that that’s what makes Uber different than the rest. Surge pricing is the response that helps them reach their Holy Grail: providing users with a reliable ride and maximizing the number of trips that people are taking in Uber-connected cars.
After New Year’s, Kalanick explained that “the math was doing its job”:
[Y]ou could start to see the utilization figures getting some slack, but then another wave of demand would hit, and continue the price surge. At some point the east coast cities started breaking 6x multipliers—we accepted defeat at that point—the unbending demand breaking our will. We would bring cities down to 3x, only to see conversion go up, supply go down, cars get saturated, and “zeroes” popping everywhere (zeroes is an internal term we use when an app opens and there are no available cars). The surge algorithms would bring the prices back up, and we would again take prices down again. The numbers beared out what we were trying to accomplish. Uber provided 60% more rides than our biggest day ever with the average fare at 1.75x (75% greater) than normal.
Of course, there’s a limit to how high even Uber wants the surge to rise. “To our dismay,” Kalanick wrote, “the pricing multiplier kept going up.” Trips that are many multiples of their regular cost make for unhappy customers and bad press. But generally speaking, what’s missing from the equation is that the public is seeing something abusive in a technique that simply makes sense. “Hotels do it,” Kalanick insisted. “Airlines do it. Car Rental co’s do it.” Even bars and clubs do it on New Year’s Eve, he wrote.
Now, hotels, airlines, car rental companies, and night clubs aren’t exactly known for their warm and fuzzy customer service. And that’s part of the challenge for Uber. The pain of surge pricing is perfectly evident when the bill comes in. The benefit — you get a car more easily in a time where the natural order is that cars are difficult to get — is hidden, or at least obscured.
Uber has tried to push the benefit front and center. After the storm and flooding that rocked Toronto last month, Uber’s general manager there wrote to explain that the rising prices were necessary because “drivers don’t want to be out anymore than you or I do. Difficult driving conditions, gridlocked traffic, and potential for vehicle damage (their source of income) makes getting off the road a very attractive option.” What the manager wanted the public to focus on was that Uber was putting more cars on at a time when the city was slogging through a transportation crunch. “We love this city, and it pains us that surge pricing is perceived as taking advantage of Torontonians.”
But if a post on the company blog won’t do it — and, of course, it won’t — then Uber is willing to use surge pricing to prove the goodness of surge pricing. (One wonders if Kalanick and his team aren’t wishing they went with calling it something less threatening, like “responsive pricing,” instead.) Over Memorial Day on Uber’s San Francisco-specific blog, an employee asked, “What happens on holiday weekends when SF already has a surplus of empty vehicles on the road?” She had an answer: the unleashing of cars at “0.75x” the normal Uber rate. “If you’re hanging around town this Memorial Day,” she explained, “all fares will be 25% less than usual – proof that sticker shock doesn’t have to be a bad thing.” She branded it “the sunny side of surge.”
If “the sunny side of surge” is a way of winning hearts and minds, it has its own problems. What sets Uber apart from the hotels and airlines and car rental companies that Kalanick claims kinship with is that they’re not changing their prices in ultra-real-time, nor are they doing it on as essential a service as a cab can be, especially during a storm. It can seem to the customer a bit arbitrary, even if to Kalanick and company there’s an immense amount of smart thinking that goes into it. A storm is one thing, a major holiday another. But Kalanick is hard at work figuring out how to adjust Uber to the scores of other conditions and occasions that make up city life.
This winter, Kalanick gave a speech in which he talked regrettably briefly about an intriguing “special project” Uber has in the works. It’s not all that unexpected that demand in the San Francisco picks up when the Giants are playing. “The interesting part,” said Kalanick, “is that when they win the pickup in demand is much larger than when they lose.” Don’t be surprised, then, if Uber gets into the sports prediction business, too.
All GetTaxi is hoping is that car customers would rather not have to calculate into their cab budget whether their hometown team is going to pull it out in the bottom of the ninth.
Nancy Scola is a Washington, DC-based journalist whose work tends to focus on the intersections of technology, politics, and public policy. Shortly after returning from Havana she started as a tech reporter at POLITICO.