The problem with Uber's surge pricing isn't the money. It's an increasing lack of trust

By Sarah Lacy , written on December 17, 2013

From The News Desk

Once again, Uber is under siege from the press and users about surge pricing. Once again, it involved inclement weather in New York. Once again, Uber CEO Travis Kalanick is being incredibly defensive.

And once again Kalanick seems to be missing the point over why people are mad and how to fix it.

He told Wired:

Surge pricing only kicks in in order to maximize the number of trips that happen and therefore reduce the number of people that are stranded.
And again, with more defensiveness:
We are not setting the price. The market is setting the price. We have algorithms to determine what that market is.
And with even more defensiveness:
We did more trips because of our approach, not fewer. We gave people more options to get around, and that is the whole frickin’ goal.
The problem is not just occasional extreme surge pricing but regular surge pricing when there isn't a snowstorm, large conference, or holiday like New Year's Eve.

The problem is no transparency around how this "algorithm" works.

The problem is that Uber also gets richer the more you pay.

And the problem is with comments like those above by Kalanick: Riders increasingly don't believe him or trust him.

Surge pricing used to kick in in times of extreme demand, like New Years Eve. Now it's going up 8x during a snow flurry.

In San Francisco, I usually walk to and from work, but lately I've been grabbing an UberX home. It's a way for me to avoid pricey San Francisco parking in the mid-Market area and was always $7 including tip.

In the last few weeks, however, I've been charged surge pricing almost every time I've left work. There's no storm. No rain. It's merely rush hour. Sometimes that $7 ride has ballooned to more than $30. I was OK with it once. Twice even. But it's become a pattern. I have no insight into what's driving it, and if it's going to continue to happen almost everyday with no explanation. Suddenly Uber isn't a reliable bargain over taking my car.

This is what Kalanick doesn't seem to get. He tells Wired that the company has to have this kind of surge pricing to keep cars on the road, because Uber's core goal is "reliability." But reliability isn't just getting a car to riders. It's getting a car to a rider at a price they're expecting. At least, the majority of the time.

I have never had an issue with the theory behind surge pricing. I am happy to pay more on New Year's Eve or even during a rain storm. But if I have to pay more just because it's Tuesday, I'm out.

Reliability isn't just a car showing up. It's being able to count on it being a reasonably standard amount of money.

By Kalanick saying "it's not us, it's an algorithm" -- he's essentially saying "trust me." But he's given riders no reason to. Trust is earned in the consumer Web, not demanded. And to be clear, an algorithm isn't something you pluck off a shelf. Uber created that algorithm. We don't know what it's based on. For all I know, it's showing me surge pricing, because I have a history of paying it -- similar to my rating of friendliness set by drivers. But the idea that they somehow have no control over it is silly. And because it's so obviously not true, it doesn't help with that whole trust thing.

Kalanick doesn't seem to get why people are upset. He seems to think the problem is simply one of people not knowing how much they'll have to pay. So Uber has continually tweaked its UI so that it's crystal clear what you are on the hook for during surge pricing. It gives you a minimum and a per mile price and makes you enter in how many times your fare you will be paying before you order your car.

And yet, people are still angry.

So now, he seems to think that we simply don't understand that an algorithm is in charge. No, Travis, we get it. But when you pull up Uber and see a swarm of cars on a day with no extraordinary events and no inclement weather, and then order a car only to get a surge pricing warning for the third time that week, well... you start to wonder what drives that "algorithm."

For all the shtick that Uber is the poster child for Silicon Valley Libertarian disruption, there is something that strikes me as somewhat un-Silicon Valley about what Uber is doing in the face of so much anger around surge pricing. Google, Facebook, Yahoo, Twitter, Instagram, Snapchat -- nearly every great consumer Web company -- has focused on serving a need and hooking large numbers of users first, and monetizing second.

The most bizarre part of the Wired interview is when Kalanick compares himself to Amazon's Jeff Bezos. But Bezos has played this long game of "market dominance first, profits second" longer than anyone. Bezos has always prioritized ultimate breadth of inventory, the lowest prices, and customer-friendly deals like free shipping over profits -- to the utter exasperation of Wall Street.

How does that have anything in common with the "sorry we can't possibly absorb the loss even during a national disaster" unabashed defense of surge pricing?

To be clear: Uber has an enviable business model. It has raised hundreds of millions of dollars in funding. And it's shown that it's willing to cut its fees or give out free gas when it comes to driving a competitor out of a market. So if the extreme and regular reports of surge pricing are a fluke of supply and demand as Uber grows, why can't it make some sort of effort to absorb some of that pain for consumers in the mean time? There is a clear long-term benefit in that. That is what Jeff Bezos would do, particularly with Uber's warchest.

Lyft, for instance, caps the amount the price will surge to just 25 percent and passes the extra revenue to the drivers. Those are actions that build trust with riders, because it's hard to imagine an ulterior motive other than the stated one of getting more drivers on the road. When Uber can surge indefinitely and takes a 20 percent cut, you can see a pretty clear motive. Especially given past Kalanick comments like, "On bad days, I look at our revenue graph."

Unlike Paul, I don't find Uber a morally reprehensible company, but I do find it morally ambivalent. Kalanick has made it clear that his obligation is towards facilitating the ultimate free market of ride sharing, not towards drivers or riders. That and he loves making money.

Lyft on the other hand, has grown slower and, to me, has a less desirable rider experience. But I sense it cares about its community and sees investing in community as its path to dominance, not grabbing revenue at every opportunity. This is becoming the clear battle between the two in the market. Between baller experience versus we-give-a-shit-about-you.

Now, Uber doesn't have to be transparent or nice or Lyft-like. As a private company, it can do whatever it wants. Being unabashedly Travis Kalanick has certainly gotten Kalanick this far. But in lieu of any transparency around this "algorithm," I'll no longer rely on it for day-to-day transportation.

Maybe that's just me. Maybe it's not.

Illustration by Brad Jonas