Uber Documents Suggest Price Cuts Don’t Always Raise Driver Wages
Aaron Fernandez / BuzzFeed News
On Jan. 8 of this year, Uber announced its now annual winter fare cuts for 2016. In a blog post titled "Beating the Winter Slump: Price Cuts for Riders and Guaranteed Earnings for Drivers," Uber Regional General Manager Rachel Holt touted fare cuts as "the single most effective way to boost demand" during the cold winter months. "Higher demand means more time moving people, less time spent waiting around and more money for drivers," the blog post reads.
That may well be the case in some cities — but not all. Internal company documents provided to BuzzFeed News, as well as conversations with Uber economists, suggest that while the company claims lowered fares mean more money for drivers, Uber actually knows less than it publicly suggests about the relationship between price cuts and driver pay. Many drivers, meanwhile, say they lose money when Uber reduces prices.
"When they lowered the rates in January, a bunch of drivers quit."
The documents, provided by a source with access to Uber's pricing models, include a trio of spreadsheets that the company used to model the impact of price cuts in three major markets: Denver, Detroit, and Houston. They also include internal Uber communications, such as guidelines for Uber employees that clearly indicate these spreadsheets did not "widely" support the company's higher-demand-means-more-money-for-drivers claim. Indeed, warning text on these documents explicitly cautions employees against publicly making "implicit or explicit claims that price cuts cause earnings to rise by increasing trips."
Uber told BuzzFeed News that these warnings exist because the company has "hundreds of new employees joining every month and it's important these people understand what they can and cannot say given that pricing is by its nature a complicated subject."
If pricing is complicated for Uber, it's even more so for drivers, many of whom say the company's fare cuts do more harm than help. As one of the many Uber drivers interviewed for this article told BuzzFeed News, "Uber said, 'We're going to lower the fares, but you're going to get more rides out of it, so that will make up for it.' And it's like, 'Well, no, it didn't really.'"
When Uber announces its typical January price cuts, which are sometimes followed by additional price cuts later in the year, it argues that doing so will entice passengers to take more rides during periods of seasonally lower demand. Uber told BuzzFeed News that the idea that price cuts cause driver earnings to drop is "not true" and a "misperception."
But that doesn't stop Uber drivers from complaining — and in some cases protesting — that fare cuts do just that. "When they lowered the rates in January, a bunch of drivers quit," Steve Rogers of Detroit told BuzzFeed News. "I went strictly to Lyft."
Price cuts in Detroit were so drastic — from 70 cents a mile to 30 cents a mile with the base fare slashed in half — that the number of passengers in search of rides soon outstripped the number of Uber drivers on the road. So Uber's surge pricing kicked in to restore the balance between the two, raising fares to encourage more drivers to hit the roads.
"We feel we're Uber's experiment."
Uber says that in Detroit, drivers' gross pay went up after it cut prices. But a big factor was surge pricing, the higher rates Uber charges during times of high demand. Indeed, when Uber said it was cutting prices in Detroit this past January, the average fare actually went up.
Uber's price swings frustrate drivers — and make some distrust the company. Jeff, a Detroit Uber driver who asked to be identified by first name only, theorized that the city's economic depression made Uber confident it could dramatically cut fares without losing many drivers. "We feel we're Uber's experiment," he said.
On April 13, 2016, a little over three months after Uber's January fare cuts took place, that experiment changed yet again when Uber increased fares, though not by as much as it had cut them in January. In an email to drivers, Mike White, Uber's general manager for Michigan, wrote, "Earlier this year we lowered prices in Detroit to encourage more riders to use Uber. We promised that if those price cuts didn't work for driver-partners like you, fares would go back up. Today we are keeping that promise and raising uberX prices by 10% in Detroit."
Even so, Uber said that it is "not unusual" for the company to wait months to reverse price cuts that hurt drivers in certain markets, lending credence to drivers who complain that price cuts can wreak havoc on their financial stability.
In order to better understand how Uber's pricing works, company employees use forecasting models. Three of these models — for the Denver, Detroit, and Houston markets — were provided to BuzzFeed News. Uber repeatedly emphasized in conversations with BuzzFeed News that these models are hypothetical, and don't reflect drivers' reality.
The spreadsheets seem to estimate how many more rides price cuts would have to generate in order to keep gross driver earnings stable. But that increase in rider demand is not guaranteed. Further, gross earnings don't account for the additional expenses (fuel, vehicle depreciation, etc.) incurred while driving more trips.
In fact, instructions in two of these models explicitly tell Uber employees to adjust how many trips drivers would have to make each hour to break even — on gross earnings, before taking into account expenses. But there are no similar instructions for net earnings, or take-home pay, which is what drivers say matters most to them. Uber uses these larger gross earnings figures (minus Uber's commission) in most of its driver recruitment ads.
Uber says the pricing models seen by BuzzFeed News are not the main tools the company used to determine price cuts in Denver, Detroit, and Houston, and don't predict the true effects of price cuts, but "simulate various scenarios that could happen."
But these models do make it possible to generate rough estimates of how much demand would have had to increase in order for drivers' gross pay to remain stable.
For example, in Detroit, Uber's model estimated that under the fare cuts the company ultimately implemented in January 2016, drivers who had been making a median of 1.43 trips per hour would (all else being equal) need to drive 1.77 trips per hour to collect the same paycheck as before. That's a 24% increase.
In Denver, drivers who previously drove 1.6 trips per hour would (all else being equal) need to do 1.82 trips per hour to make the same amount of money, a 13% increase, while drivers in Houston who had been doing 1.21 trips per hour would need to raise that to 1.52 trips per hour, a 26% increase, to take home the same paycheck.
Extra time on the road means more money spent on gas, car maintenance, and other expenses. Uber's pricing models do estimate these expenses, but the calculations are oversimplified and, by the company's admission, inaccurate.
"I did more rides after fare cuts, but I didn't make more money."
Uber's forecasting may be imprecise, but the company does have data on what actually happened after price cuts. How was driver take-home pay impacted in each of these three cities following Uber's January 2016 price cuts? The company declined to say. Uber told BuzzFeed News that "individual driver costs vary widely, and so are hard to estimate accurately."
Uber did say that drivers' gross earnings in both Houston and Denver remained "stable." Pressed to explain what that meant, one Uber economist said "stable" in this case means earnings could have gone up a little bit or down a little bit. The economist also noted that because there are so many factors in play, it's difficult to precisely identify the degree to which price cuts affected overall earnings.
Uber told BuzzFeed News that these pricing models are relatively new, and that the company is still developing its forecasting methodology. It acknowledged that it is possible price cuts will not always increase the amount of money drivers actually earn, and noted that the company offers drivers some recourse should that happen.
"There have been instances where a model predicted a decrease in earnings, but earnings actually increased," Uber told BuzzFeed News. "That's why we offer drivers guarantees to ensure that they are not worse off. It's also why we reverse cuts when it's clear they are not working for both riders and drivers."
Uber says its guarantee is simple: If drivers don't earn above a certain minimum average wage, Uber promises to pay the difference.
But drivers BuzzFeed News spoke with say the guarantee comes with so many complicated stipulations that it's almost worthless. The guaranteed rates are available only during certain time slots (for example, 10 p.m. to 3 a.m. on Friday) and only to drivers who accept and complete a certain percentage of rides (for example, 1.5 rides per hour completed with a 90% acceptance rate). If drivers fail to meet any of these criteria, the guarantee doesn't apply.
"The stipulations aren't realistic," said Jeff, the Detroit driver. "You really have to know how to work it. At the end of the day, it's not worth it." Other drivers said Uber's fine print renders its guarantee "difficult" if not "impossible" to collect.
Internal Uber communications seen by BuzzFeed News concede that guarantees "can be confusing."
Hourly guarantees are "not in place perpetually," according to Uber, but if a price cut really isn't working out for drivers, Uber says it will reverse course and raise prices.
Since 2015, the company says, price cuts have been reversed in 50 cities. For comparison, in January 2016, Uber enacted price cuts in about 100 markets.
Uber says it can take "some weeks" to determine how its price cuts are impacting driver earnings, and an Uber economist told BuzzFeed News that it's not abnormal for these reversals to take 16 weeks to come into effect — a considerable amount of time for a technology company with expertise in real-time data and logistics.
Only individual Uber drivers can know exactly what they're pocketing at the end of any given week. But given the imprecision of the Uber price-cut models reviewed by BuzzFeed News, and the length of time it takes the company to reverse fare cuts that don't work out, it's clear the price-cut program can make it difficult for drivers to know how much money they're going to make.
"I did more rides after fare cuts," Steve F., who has been driving for Uber in Detroit since last May, told BuzzFeed News, "but I didn't make more money." Instead, Steve says it felt like he was working harder just to earn less.
"If you're making 20 bucks an hour at your job, and your boss says, 'Steve, you're going to make more money, but I'm cutting your per-hour to 11 bucks, and you're going to work 80 hours per week to make up for it,' why would you want that?"
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