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Uber seeing deja vu as riders complain of rate gouging following Caltrain fatality

By Michael Carney , written on October 16, 2014

From The News Desk

Uber found itself in a familiar vat of hot water last night after seemingly rate-gouging stranded travelers during a state of emergency.

When a Caltrain hit and killed a pedestrian in Palo Alto last night, trains were delayed around the region and and demand for Ubers naturally spiked. The company’s surge pricing algorithm kicked in quickly reaching 3X normal pricing. Frustrated users took to Twitter to voice their outrage, accusing the company of profiteering off of the death and the broader public inconvenience.

Heroku Director of Security Jacob Kaplan-Moss seemingly kicked things off with a tweet that not only went viral, but made him the target of the pro-Uber Internet mobs:

— jacobstructionist (@jacobian) October 16, 2014

— jacobstructionist (@jacobian) October 16, 2014

— jacobstructionist (@jacobian) October 16, 2014 If you recall, Uber was accused of similar tone deaf opportunism when its rates in New York City spiked in the run up to Hurricane Sandy. The company’s initial reaction to the uproar was first one of indifference, and then spin, but as the public pressure increased and the interest from regulators grew, the company ultimately agreed to limit surge pricing during emergencies and disasters. According to Time Magazine’s coverage of the agreement:

Under the new terms, Uber has agreed to cap its prices during emergencies and disasters at a level below the three highest-priced days in the previous two months (Uber prices are constantly in flux because of supply and demand). The new rules will apply nationally. Uber also said it would donate the surge commission it earns on fares during natural disasters and emergencies to the American Red Cross.
Uber CEO Travis Kalanick explained the strategy to Time, saying:
This policy intends to strike the careful balance between the goal of transportation availability with community expectations of affordability during disasters.
And this brings us back to yesterday’s Caltrain emergency. While higher than the base fare, 3X pricing is hardly a record increase for Uber. While attending San Francisco’s Outside Lands music festival in September, for example, prices routinely reached 5X and 6X surge. In that sense, it would seem as if Uber honored its anti-gouging, state of emergency pledge, whether proactively or simply by circumstance.

Moreover, as Uber has always explained, surge pricing exists for the specific purpose of incentivizing more drivers onto the road to deal with times of increased demand. Surely the demand in and around Palo Alto was at unprecedented levels, those which a standard Wednesday evening crew of drivers would struggle to meet. By contrast, traditional cabs have no way to incentivize additional drivers onto the road, and while dispatch may be able to call off-duty drivers and ask them to clock in, there’s no mechanism to provide financial incentives for them to do so. So while unsightly, the surge in this case likely served its purpose.

As with most situations of this type, where Uber runs into trouble is in the communication and transparency around its actions. Had the company simply issued a statement (or Tweet) acknowledging that it was aware of the Caltrain incident and that it was doing everything in its power to satisfy the demand while limiting surge – and possibly that it would be donating surge commissions during the event to the Red Cross – that likely would have negated the majority of the backlash.

As long as Uber sticks to the surge pricing model -- and as long as consumers dislike being charged more than “normal” for the service -- expect incidents like this to emerge whenever there’s a large public event or an emergency situation. It’s unclear that scale will help either. As the service grows in popularity it will benefit from more drivers and more liquidity, but also frommore demand and more dependency among riders. The only upside will be that more people are familiar with the inner-workings of Uber’s surge-pricing model, and so at least the surprise factor will be lessened.

A final note on this incident -- it’s striking just how absent Lyft was from this conversation. We know the pink mustached service is the far smaller company, but the San Francisco Bay Area is one of its core markets. While it’s always good to avoid controversy, at the same time it’s a troubling sign that the company apparently wasn’t relevant enough to factor into this incident. Either Lyft didn’t see enough demand to institute its own version of surge pricing, or it simply doesn’t elicit the same sort of anger from its users (the company certainly has a less checkered reputation).

Both Uber and Lyft are seeking to create a world in which on-demand transportation and ride-sharing largely replace private driving. For this to work, consumers will need to trust that when they need access to such services they will be available and at accessible pricing. Unfortunately, these two factors are often in competition with one another. To date, surge pricing has been how every company in the industry deals with that demand. It’s certainly not popular and isn’t always transparent. But it’s here to stay.

I’ve reached out to both Uber and Lyft for comment on last night’s events. This post will be updated as additional information becomes available.

[Illustration by Brad Jonas for Pando]