The Wall Street Journal reported this week that Uber is in talks with Japan’s SoftBank regarding a potential $5-$10 billion investment in Uber by an investment group.
The media is all abuzz with talk of the technical details of the potential deal. Forbes talks about a “ride-hailing investment war” heating up. Fortune and The Wall Street Journal focus on SoftBank’s insistence on purchasing shares at a steep discount. Android Headlines is writing that tensions are sky high at Uber in light of the potential massive investment, while Fox Business discusses the deliberations that Uber’s board has gone through in recent days to hash out a response to SoftBank.
Have sources telling me that this is almost done and is expected to be the largest secondary transaction in history https://t.co/x5qy1W7EoL
— Katie Roof (@Katie_Roof) September 14, 2017
BUT… no one is talking about how this might affect passengers and drivers.
I have lived through several of these large cash infusions while I’ve been a driver for Uber over the last four years, but when I read news of this potential investment, I celebrated! And not prematurely, I hope.
One thing I noticed in the early days was that whenever Uber successfully closed a large round of fund raising, two things would invariably happen; Drivers would get increased pay in some form or fashion, and riders would be offered attractive discounts.
In the past, Uber has used the proceeds from these investment rounds to build market share. They have two key markets for which they need to build share. One is the market for riders and the other is the market for drivers. People forget that drivers are every bit as much customers of Uber as riders are. Uber has to compete for drivers just as hard as it does for riders.
Without enough drivers, riders will be forced to look elsewhere for transportation. Without enough riders, drivers will drop out for lack of earnings. So, it’s very important for Uber to compete for both. And that is just what they have done in the past when they’ve had a giant infusion of cash.
What it Could Mean for Riders
Typically, what Uber has done in the past for riders is they have come up with all kinds of promotional gimmicks to get existing passengers to use Uber more as well as to motivate them to spread the word to non-users in order to grow their rider base. They have done a two-pronged promotion in the past.
One prong gives current riders deep discounts. Maybe they’ll come up with a promotion that says, ‘Ride with us Monday-Friday this week between 7:00 a.m. – 9:00 a.m. and get 50% off.’ Their objective with promotions like that are to get current passengers more addicted to using the service at certain times for specific purposes – like going to work. In this case, they would try to get more people to get in the habit of taking Uber to work by giving a deep discount for a week or two.
The other prong would focus on bringing in fresh blood – new customers.
In the good old days, Uber would pay up to $50 total for a new customer referral. They would offer current passengers a $25 incentive for each new person they referred and they would offer $25 to each new customer. This $25 could be used towards the fare of one or more trips until the $25 was used up.
In other words, the customer referring and the new customer who was referred could each have the $25 applied to each and every trip they took until it was used up.They could do five trips at $5 each and the $25 would be applied equally to each one. Or, they could do one $12 trip and one $13 trip and the $25 discount would be applied fully to each trip until it was used up.
That’s how Uber did it when they got a fresh infusion of cash. But over time, as the cash runs out, the incentives get stingier and stingier – to the point that they become more an insult than an incentive.
Today, Uber offers new passengers a $20 discount “on your first ride”. When anyone reads that, it sure looks like they’re going to get $20 off. But, you have to read very carefully when it comes to Uber. They say, “$20 off on your first ride”!
If your first ride ends up being $25, then you’re in luck. You’ll only have to pay $5. But, if your first ride is only $5, you’ll get that ride for free, but you’ll lose the remaining $15 of your discount! It cannot be applied to any ride other than your first ride. In essence, they are able to call it a $20 discount, but in reality, many times they will pay far less than $20 because passengers don’t realize it can only be used on their first ride.
If Uber succeeds in closing the SoftBank deal, I think riders might expect this terribly stingy offer to become somewhat more generous. Maybe they’ll say the discount can be applied to your first three trips. Or, maybe, if they’re feeling generous, they might say the discount can be applied to as many trips as it takes to use it all up.
What It Could Mean for Drivers
For drivers, Uber has become equally stingy. In the past, when they were more flush with cash, they actually offered some nice incentives. In New York, a year ago they offered guaranteed “boosts” of up to nearly 2x the normal rates during certain hours in certain areas. The hours were many and the areas were large. Over time (as they ran out of cash), the areas have become smaller and the boosts now can be as low as 1.1x the normal rate – which is actually more of an insult than a boost to our morale!
This year they have a new program they call “Quest” which is a bonus drivers get if they drive a certain number of trips within a certain timeframe. When they first began offering this program, it was pretty decent. They would say something like, ‘Drive 10 trips and get an extra $50’! That’s actually worth going out for. It’s $5 extra on each trip. So, if you get a minimum fare trip, which on uberX will earn you about $5 in New York, that trip will now earn you $10! Which isn’t bad for a quick minimum-fare trip.
But today, they have become so stingy with the Quest bonuses that they’re more of an insult than an incentive. I literally see the bonus for the week, and I turn the app off and say, ‘forget it’. I feel so insulted that it makes me less likely to drive for them!
— Harry Campbell (@TheRideShareGuy) September 15, 2017
They would be better off not offering any bonus at all. I got an email from them yesterday that said, “Drive 20 trips and get $20”. Yes, an extra $20 is nice, but it’s only $1 more per trip. So, it’s hardly worth it. On average it will take ten hours in New York to drive 20 trips. So, while the extra $20 is nice, it’s hardly nice enough to motivate a guy to drive a ten-hour day when he might be able to come up with other ways to make an extra $20 in ten hours!
Also, notice in the two above examples, that the bonus today requires twice as much work for half the bonus. Originally, you would get $50 for driving ten trips. Now, you have to drive 20 trips to get just $20. So, literally, twice as much work for a bonus that’s half what it used to be. It really is insulting to anyone who remembers what it used to be.
If the investment from SoftBank comes through, I think drivers can expect better bonuses and higher earnings, at least for a time. That, combined with the fact that they’ll stay busier because riders are getting incentives too, will make for a sweet spot they won’t want to miss. But even though I think it will be short-lived, I think drivers should take full advantage of it when when it does come through.
What do you think of a massive cash investment into Uber? Do you think this will help drivers or riders? Let us know your thoughts in the comments below!