Wednesday, April 13, 2016

Uber's Post-Cab Approach

Uber Technologies Inc. is an American multinational online transportation network company headquartered in San Francisco, California. It develops, markets and operates the Uber mobile app, which allows consumers with smartphones to submit a trip request which is then routed to Uber drivers who use their own cars.  As of April 12,2016, the service was available in over 60 countries and 404 cities worldwide.  Since Uber's launch, several other companies have copied its business model, a trend that has come to be referred to as "Uberification".

Uber was founded as "UberCab" by Travis Kalanick and Garrett Camp in 2009 and the app was released the following June. Beginning in 2012, Uber expanded internationally. In 2014, it experimented with carpooling features and made other updates. Klout ranked the San Francisco-based company as the 48th-most powerful company in America in 2014.  By late-2015, Uber was estimated to be worth $62.5 billion.

The legality of Uber has been challenged by governments and taxi companies, who allege that its use of drivers who are not licensed to drive taxicabs is unsafe and illegal.

Pricing and Payments

Uber's pricing is similar to that of metered taxis, although all hiring and payment is handled exclusively through Uber and not with the driver personally. In some cities, if the Uber car is travelling at a speed greater than 11 mph (18 km/h), the price is calculated on a distance basis; otherwise, the price is calculated on a time basis. At the end of a ride, the complete fare is automatically billed to the customer's credit card. Uber has said its prices are the premium that the customers pay for a cab service that is not only reliable, but also punctual and comfortable.

Surge Pricing

Uber uses an automated algorithm to increase prices to "surge" price levels, responding rapidly to changes of supply and demand in the market, and to attract more drivers during times of increased rider demand, but also to reduce demand. Customers receive notice when making an Uber reservation that prices have increased. The company applied for a U.S. patent on surge pricing in 2013, but it was rejected for being obvious.

The practice has often caused passengers to become upset and invited criticism when it has happened as a result of holidays, inclement weather, or natural disasters. During New Year's Eve 2011, prices were as high as seven times normal rates, causing outrage. During the 2014 Sydney hostage crisis, Uber implemented surge pricing, resulting in fares of up to four times normal charges; while it defended the surge pricing at first, it later apologized and refunded the surcharges. Uber CEO Travis Kalanick has responded to criticism by saying: "...because this is so new, it's going to take some time for folks to accept it. There's 70 years of conditioning around the fixed price of taxis." Uber released a post detailing why surge pricing is in place and how it works. They emphasized that without surge pricing, Uber would not have its trademark service of pushing a button and getting a ride in minutes. This is detailed in a case study around a sold-out-concert at Madison Square Garden when surge pricing took effect. During this event, the number of people who opened the app increased 4x, but the actual ride requests only rose slightly, enabling ride requests to be completed with the usual ETAs.

Surge pricing makes supply and demand match so efficiently that the waiting time is almost always below five minutes, regardless of the circumstances. Surge pricing increases economic efficiency in two ways: 1. rising prices motivate more drivers to start driving, 2. when there are not enough drivers for everyone, the rising prices make only those customers accept a ride whose needs are highest.

When a surge in demand in the New Years Eve did not rise prices, due to a fault in technology, fewer drivers chose to start driving and fewer customers chose alternative transportation methods. Therefore, waiting times became long and just a few lucky customers got a car, most were left without. In terms of efficiency the situation was a failure.

Also many airline and hotel companies price dynamically. The difference to Uber is that Uber makes its pricing transparent

Development History

During the initial development of the Uber app, the company created a think tank consisting of a nuclear physicist, a computational neuroscientist, and a machinery expert who worked on predicting demand for private hire car drivers and where demand is highest. Later in 2012, Uber launched its Uber Garage initiative in Chicago. The experimental program allowed Uber to partner with local taxi cab drivers, alerting them when an app user requested a ride. The company also introduced uberX in 2012, a service option which allows local drivers to respond to notifications on the Uber app by driving customers in their own non-luxury cars. During 2013, Uber offered its first non-car option when it launched UBERChopper rides from New York City to the Hamptons for $3000 each.

In August 2014, Uber launched UberPOOL, a carpooling service, in San Francisco and UberFRESH, a lunch delivery service, in Santa Monica.

Uber CEO Travis Kalanick has spoken about his desire to eventually move to using self-driving cars for Uber vehicles. By May 2015 the company had hired a large number of Carnegie Mellon University researchers from the vehicle autonomy department to work at Uber's Advanced Technologies Center in Pittsburgh.

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