Uber’s CEO: There is Very Little We Can Do to Improve Driver Earnings

There’s a new Uber driver app coming out and it’s a big deal.  This week, Uber delivered a major (and unprecedented) presentation to drivers, detailing and explaining the changes in its new driver app.

In an interview with The Atlantic, Uber’s CEO, Dara Khosrowshahi, said “it embodies the new, kinder Uber.”

But, apparently it doesn’t embody an Uber that’s going to do anything to help drivers make more money – which of course is their primary concern.

Most of the changes to the app are cosmetic, non-essential, or unimportant.  Online, drivers have railed against it saying it does nothing to address their real concerns.

https://www.youtube.com/watch?v=Niz5uyv9aWU&t=1421s

Before we get into all the nitty gritty bad news, let’s first at least give Dara credit for actually making a presentation to drivers.  That is indeed unprecedented in Uber’s brief history.  It’s hard to imagine founding CEO Travis Kalanick doing the same – and to our knowledge – he never did.  So, while the presentation didn’t offer any substantive good news for drivers, it is certainly a step in the right direction.  It shows that at least some of the new CEO’s time is spent thinking about drivers – which is probably more than can be said for the last one.

However, as some of his comments to The Atlantic show, he’s still not registering with our real concerns, or at least he’s not willing to say anything publicly about it.  It was his first public appearance before drivers worldwide, so it is significant what topics weren’t mentioned.  Topics of great concern to drivers were completely ignored in his first public appearance before drivers.

Topics of great interest and concern to drivers that weren’t mentioned include:

  • Earnings – nothing was said to address driver concerns about earnings;
  • uberPOOL – although this was a presentation of the new driver app, and although uberPOOL is integrated into the app and causes nothing but headaches for drivers; and although this is one of the most pressing issues for drivers, not a single word was mentioned about it. In fact, the word “uberPOOL” wasn’t uttered a single time.  That struck some drivers as a little odd since the way uberPOOL trips work in the app their largest headache as far as app concerns go.
  • Ratings Integrity Issues – another app related issue that wasn’t mentioned is the fact that passengers can see how their driver rate them – before they rate their driver. So, if the driver was drunk, or rude and the driver and gave them one star, the passenger is able to see this before they rate the driver.  So, of course a low rating from a driver will result in a low rating from the passenger.  This does nothing to help ratings integrity and it does nothing to further the safety of drivers.  If drivers can’t honestly rate a bad passenger, then future drivers may be put at risk by those passengers.
  • Rider Destination Still Not Displayed Before Driver Accepts Trip – One of the biggest and most helpful changes Uber could have made to the app would be to display the rider’s destination. Or give an estimate on the earnings or length of the trip.  They obviously don’t have to show drivers the exact destination, but they could at least show the general area the passenger is going to.  They obviously can’t do this now though – with rates being so low – because most drivers would reject all of the $3 and $4 trips – which is a large portion of trips.  But if we’re true independent contractors, we should be able to get an estimate on how much a trip will pay and what area it will take us to before we decide whether or not to accept it.

Dara on Driver Earnings

Those are some of the biggest concerns and headaches drivers have when using the Uber driver app.  But nothing was mentioned about any of them.  In other words, the biggest issues were kept in the closet.

But the biggest issue of all is driver earnings.  Khosrowshahi said nothing about it.  Neither did any of the other presenters.  However, Khosrowshahi did have plenty to say about it in his interview with The Atlantic – and it wasn’t good.

“In fact, Khosrowshahi maintained that even if he wanted to increase earnings for drivers, he couldn’t just hike rates without hurting them just as much.  “In general, if rates overall go up, demand goes down and if demand goes down, driver utilization goes down, and then overall earnings often go down or don’t go up. There is actually very little that we can do in terms of overall earnings for drivers.”This is a stunning statement by a man who has been the CEO of major companies.  Perhaps it’s because his college degree was in electrical engineering and not economics.  But he did work with Allen & Company for seven years which is an investment bank.  You’d think he might have learned a little about economics there.  But apparently not.

He is half right though.  If Uber increased rates to a level where drivers believed they could thrive, two things would happen:

  1. A lot more people would sign up to drive; and
  2. Passengers would use the service less

So, he is right – if they raised rates, you’d end up with more drivers and fewer trips.  But that in no way means there is nothing Uber can do “in terms of overall earnings for drivers.”  He’s overlooking something so apparent, so obvious and so basic to simple economics, that it’s hard to believe he doesn’t see it.

The solution, and the only solution, to the earnings problem for drivers is to raise rates AND lower the number of drivers.  That’s the only way Uber can get prices up to sustainable levels for drivers.

Currently, it is estimated that Uber loses half its drivers every six months.  Constantly replacing them is a huge expense and contributes to their massive annual loses.  They could solve both of these problems by raising rates and lowering the number of drivers they allow on the road.  If drivers are earning a living wage, far fewer of them will drop out.

If they increased rates, Dara is right that passengers would take fewer trips.  But that’s okay, because if the lower the number of drivers, it should balance out just right.  Uber seems to want as many drivers on the road as possible, so no passenger ever has to wait more than three minutes for one to show up.  But if passengers were taking fewer trips, they wouldn’t need as many drivers to accommodate them all.

If they raised rates and limited drivers, Uber would be more profitable on each trip and so would drivers.  They therefore would lose far fewer drivers, which would greatly lessen their constant recurring recruitment expenses.

Another benefit to this strategy is that the quality of service would skyrocket and go back to what it was in the early days.  In the early days of Uber, the quality was amazing.  Passengers used to brag that the cars and drivers were so much better than taxis that they said they didn’t mind paying a little more than taxis cost!

Then Uber started slashing rates, year after year.  Now they’re about half the cost of a taxi.  I remember a friend and I were talking about that one day about three years ago and we concluded it wouldn’t be long before Uber cars were worse than the taxis they were replacing.  Well, that day has now arrived.  Uber cars on average are abysmal.  Not that it’s the drivers’ fault who aren’t earning enough to maintain their cars in good condition.  But it is today’s reality nonetheless.

It won’t be long before dread works its way into our national consciousness whenever someone thinks of taking an Uber.  And that’s not going to be good for Uber at all.

Uber management really needs to take a long term view and realize doing what’s good for drivers is what will make Uber thrive for years to come.  Thinking they can squeeze drivers for every last cent on their road to profitability is short-sighted and doomed to fail.