A Walk Through Surge Pricing, 2010-2012
Did you see the above image while trying to request an Uber on New Year’s Eve? Or did you get a text that said that rates were higher for after midnight? Do you want to know why?
We are trying to make sure you always have an Uber available.
The graph below illustrates a perfect world, where wisdom and graphs prevail, and there are always Ubers available. This is the world we want to live in at Uber and we’re on the road to getting there:
How? Through Surge Pricing. We raise the price of our service when the supply of available cars gets tight. [Example: If there are 300 on the Uber system in a city and 290 of them are picking up a rider or in trip, then this would be considered an extremely tight supply situation.] We raise the price in increments over time based on supply health. When supply opens up, we then lower the price.
We didn’t get to this succinct way of explaining our pricing model right away. It’s been a year-long process, and one we hope to refine into the next year. Let’s take a trip into the history of surge pricing and then take a peek at what’s to come…
Uber’s first New Year’s Eve, this was back when the service was only available in San Francisco. The team knew we’d be overwhelmed by demand, so rates were raised by 2X in the hopes of being able to offer rides to as many people as possible:
By October, Uber had expanded to multiple cities, and we were ready to step up the game with our first foray into surge pricing. We went dynamic for Halloween.
New Years Part II! This time we were ready to be truly sophisticated. We had launched in Paris after all, and it was time to ensure that we could truly keep up with global demand by matching price with demand every step of the way.
Knowing that this is a new way to price transportation we wanted to make sure that we could educate as many of our riders as possible of the possibility of increased fares during times of surges in demand. So, we wrote city specific emails to all of our registered users, made sure to tweet the heck out of it, answered questions on Quora, and covered our bases with pro-active communication. We received a lot of great feedback, including this thoughtful blog post from one of our riders.
Of course, what might be a reasonable price to one person might be out of another person’s budget. (Enter designer shoes and fancy rides. We all like to spend our money in different ways.) To ensure that every Uber rider is aware of the price increase, they are shown this screen (or sent a text) that alerts them of any increase in price. You must hit the “OK” button before we allow you to go to the next screen and dispatch a car to you.
The goal of this screen is to avoid sticker shock after a ride. To some people this screen is sticker shock; they have the chance to cancel the request and wait for demand to subside and for the price to go down.
If the number of people hitting “OK” doesn’t subside, then the price raises up another level. This New Year’s Eve we had extremely high demand and prices stayed above 5X for a few cities for quite a while.
It’s too early to tell what happened this New Year’s Eve. But, rest assured our Math Team will be crunching these numbers, making pretty charts, drawing on windows, and arguing into the wee hours of the morning to figure out what this all means and how we can turn our knowledge of supply, demand, and our service into a better ride experience for both the riders and the drivers we connect.