The Economics of UberX in NYC | Hacker News Reader

The Economics of UberX in NYC

justin-singer.org

79 pointsjmover45 comments

While fascinating, this analysis seems to fall apart on two major fronts.

1. It seems to completely discount surge pricing, which would likely change these numbers significantly.

2. It assumes that taxi and Uber behavior is very similar, but this seems pretty dubious for 2 major reasons:

a. In dense areas it's far more convenient to use a taxi than an Uber (you can hail one in a minute or two), while in less populated areas it's far more convenient to get an Uber. This would definitely skew Uber significantly towards longer, speedier trips.

b. Uber likely sees a greater proportion of utilization from airport rides. For an expensive trip like that, people are more price conscious and most New Yorkers know it's usually much cheaper to take Uber. When juxtaposed against the prospect of waiting in line for a ~$60 + tip taxi ride, the immediacy of a $63 Uber looks very appealing. Additionally, I imagine Uber is seeing disproportionate growth amongst tourists (who might already be using Uber elsewhere but are intimidated by hailing NYC taxis).

The author does discuss surge pricing.

Only briefly in a footnote, and without updating the math to reflect that.

"it turns out that surge pricing amounts to no more than a 12.5% fare premium. Not nothing, but not explanatory either."

Nope, he does not. If he'd studied the blog post he's linked to, it is clear that surge rates can go a few multiples at busy periods, which would make an outsized contribution to total fares even at 10-15% occurrence.

If you look at the service area on the ubernyc page, it goes way beyond the city limits (even a fixed price to the hamptons). Again, even if the percentage of these rides are low, it isn't hard to see how average trip length or average fare would be moved up significantly.

I read the article - even though it's written well, it makes a lot of hypotheticals based on hazy assumptions that seem to lead well to a result that the author probably wanted to put forward. Not the best article if you want an objective analysis on the issue.

Did you look at the spreadsheet he linked to in the footnote where he calculates the cumulative effect of surge pricing? Where would you like to quibble with the math?

https://docs.google.com/spreadsheets/d/1N4NiwuPLo78w9PaoqXRa...

Daily weighting is made up without any real insight into operations. Furthermore, whatsthefare says that it bases its own approximations on relatively sparse data from user's use of their systems, not realtime monitoring on a service that's probably prone to constant change.

I think I mostly find it incorrect to essentially take a pin-hole view at the data through 5-6 averages, and extrapolate it towards a somewhat biased result.

Even if you drastically change the daily weightings you don't move the overall output very much at all.

As for the other data they describe their collection methodologies, and the numbers they produce are in line with trends that Uber has indicated. You're certainly free to produce a dataset of your own but until you do that this one doesn't seem especially bad or anything.

a. The analysis is clearly conclusive for NYC, which is densely populated. What am I missing?

b. Where's the data that concludes any of these points?

Not all of NYC is so densely populated that you can hail a cab faster than an Uber.

for the next three months at least, Uber is indemnifying full-time drivers against slow business. Good luck competing with that, companies-that-don’t-have-a-$1.5-billion-war-chest.

This is what worries me. Uber are the freemarket dream child, but they're using their financial heft to actively distort the market. They've already driven Hailo out of the city, and I wonder who is next. I want Uber to become the de-facto choice by providing good service, not by bullying everyone else out of the city.

I agree that this is concerning, but I think the risk is mitigated by the relatively low tie in. I personally don't care which app I use. So, I end up using whichever service will give me more VC-paid free credit.

Uber has the most VC by far. But, if they use that to kill competitors and subsequently try to raise prices, I'd happily switch to the next upstart that undercuts them.

The only big downside is that it necessarily requires a lot of VC to compete with them right now.

> Uber has the most VC by far. But, if they use that to kill competitors and subsequently try to raise prices, I'd happily switch to the next upstart that undercuts them.

That's the rub of dumping. You basically have to do it indefinitely or you eventually get competition. The lucrative "jack up prices" phase is really hard to safely transition to. Barriers to entry, specifically long lead times, will make dumping more feasible for certain goods or services. It's not trivial to spin up a car service, but I'm not sure the barriers to entry are high enough or not.

There are other ways you can behave anti-competitively without dumping too...

This guy's whole article falls apart based on one terrible assumption: that Uberx behaviors are similar to taxis. There are a whole host of reasons why this is not the case. Taxis are more likely to hang out in dense, Manhattan areas contributing to short and slow rides. Riders would much prefer to take an Uberx to the airport than a taxi. Surge pricing. Etc.

Why would people be more inclined to take an UberX to the airport than a taxi? The taxi has a flat fare. And from the map view I've seen using Uber, UberX's absolutely do hang around in dense Manhattan areas.

> Why would people be more inclined to take an UberX to the airport than a taxi?

In the outer boroughs there frequently ARE no taxis. So you have a bunch of Uber rides that used to be car service rides which distort the numbers.

> The taxi has a flat fare.

Only from JFK to Manhattan

The flat fare is only from JFK to Manhattan(source: http://www.nyc.gov/html/tlc/html/passenger/taxicab_rate.shtm...), not to JFK, or to/from LGA, and not to the other boroughs. UberX also comes to my apartment, while a taxi rarely does, and the drivers are typically more patient with me strapping my son's car seat in (or providing one in the case of Uber Family) and even helpful.

As someone who does not live in Manhattan, I can say that I'm far more likely to be able to get an Uber than a taxi outside of Manhattan (although it's a little better now with the Green cabs). And, I've never had an Uber driver keep their doors locked and speed away at rush hour when I told them I was going to Brooklyn. My utilization of taxis in NYC is entirely different than my utilization of UberX.

"For trips between (to and from) Manhattan and JFK International Airport, the flat fare is $52.00"

TO AND FROM

I know reading is hard.

I'm sorry that I missed that phrase. I don't have experience going to/from the one of three NY area airports that has flat taxi fares because I live in Brooklyn, not Manhattan (and Brooklyn applies to the analysis of Uber in NYC). There is definitely no need to be unkind to me about it; I'm sure you've misread something at least once.

I live in Manhattan and I now prefer to take Uber/Lyft to the airport whenever there's no surge pricing. Taxis are _supposed_ to have flat pricing but I've never found that to be the case: given all the bridge/tunnel tolls, baggage fees, and airport taxes, I'm consistently charged anywhere from $80-$120 one-way from Midtown Manhattan to LGA (+tip). In comparison, Uber uses GPS tracking to automatically figure out which tolls to tack on, and it costs me $63.

NYC Taxis have a flat fare to JFK. This does not apply to LGA.

That being said I have no fucking clue how you're spending $80 or more on that fare. Even if you're coming from the far west wide and sitting in traffic forever you shouldn't be cracking $50.

You are being taking for a ride, literally. Midtown to LGA is ~$30-$40 before tip. And flat rates are JFK only.

How big are these differences? Do you have estimates of some kind? How does that change the bottom line on the math he's done? Without putting numbers to your assertion I'm not sure how valuable it is.

The obvious way to estimate the difference would be to assume Uber isn't actually lying about the average fare/trip length/speed. The "math he's done" involved arbitrarily cutting the average fare in half based on a guess that Uber is lying somehow to juke the stats. My guess would be that they're not and the better numbers they get are merely the result of differences between how people use Uber and how they use cabs.

Not taking surge pricing into account probably plays a large role in explaining this article's findings.

Another thing to note in his section with self driving cars: the pool of cars would be fixed in that case, but the amount of uber drivers fluctuates throughout the day. Now, uber doesn't really care if drivers are 70% utilized or 50% utilized, as their revenue doesn't depend on that, but they do have an interest in keeping the drivers marginally satisfied

Also I don't have the numbers but at least in SF, taking an uber to the airport is much cheaper than taking a cab ($25 vs 50 from my office, last I checked), so I could imagine that something like that skews the distribution of ride lengths.

I think the distribution of ride lengths might partially have something to do with the nature of cab hails in NYC vs. other cities. I travel a lot, and in most cities, uber is my go-to cab service, because I don't know the local cab system, I might have to call multiple companies, I can't street hail in a lot of places, etc.

However, in NYC, it's often faster to street hail a yellow cab for short trips than it is to wait for an uber. So here, I mostly use uber for long trips (airports, midtown to the financial district, brooklyn, etc.) or for time-sensitive situations.

"it turns out that surge pricing amounts to no more than a 12.5% fare premium. Not nothing, but not explanatory either."

What's odd to me is trying to discuss Uber in NYC by comparing to yellow cabs. We have a thing in NY called "car services" which basically everyone uses, and which are much more comparable to Uber than taxis are. You call a car, they come to your house, they pick you up, and they take you where you want to go for a predetermined price.

In general, the car services I take are cheaper than Uber or metered taxis. But not always. And they can be a little more annoying to deal with than just using an app on your phone. Certainly Uber would be far less intimidating for tourists.

Plus Uber was able to pick me up in the rain on Halloween, because of surge pricing. And they only charged me triple!

But seriously: if you are talking about Uber in New York and not mentioning Arecibo car service, which has several hundred of cars all over the city at all times of the day and night, and is one of many such services in operation, you are missing a huge part of the equation.

The most important giveaway of this post is this: "But at the end of the day, their business model boils down to taking a 20% rake of a large commodity services business while pushing assets, costs, and liabilities off the corporate financial statements and onto the shoulders of their not-quite-employee-partners."

And yet people still choose to drive for Uber. Are they all being taken advantage of?

And yet people work for walmart, are they all being taken advantage of?

There is a claim that some positions of power make people unqualified to make choices. Think student/teacher or adult/minor sexual relations or maybe some of the ideas around accredited investors -- non-accredited investors are not allowed to invest in certain types of assets to protect them from predatory practices.

I'm not commenting on morality here, but the state of current law.

but then, is that the "disruption" we really want?

Sometimes we have laws that protect people from their own decisions, absolutely true. But protecting people right into unemployment seems like a funny kind of help.

> Think student/teacher or adult/minor sexual relations

You are literally comparing working for Walmart to being raped? That's a bit condescending not only to people working for Walmart but also to rape victims.

Well yeah because they've been subsidizing wages. Just recently Uber's tried to lower the amount paid out to drivers (saying the previous rate was "promotional") and there was a huge amount of discontent

http://www.businessinsider.com/uber-new-york-city-office-pro... <-- some protest at New York office, same sorts of protests elsewhere

Yeah I think they are, but people also value being able to control how long they work for and the exact hours they work. Plus it can be just an additional stream of income.

On one hand, no, of course not. It's a voluntary transaction between adults. There's no taking advantage of someone who comes willingly. I used to think this.

But on the other hand, if some people are getting really really rich off the labor of some really poor people than it's gotta make you wonder a bit. And the risk distribution has really got to make you wonder.

Uber, being big and diversified could easily take on that risk and insure against it (or really just self insure with their scale). A single driver on the other hand could be completely wiped out by bad luck. Uber isn't doing this though. Why is that?

It's certainly worth thinking about more deeply than simply shrugging and saying that you can't take advantage of someone in a voluntary transaction.

> some people are getting really really rich off the labor of some really poor people

The answer to this is more competition between companies. Uber is enjoying temporary market dominance.

I don't understand. Why do you have to wonder? No offense but there is a lot of hand waving going on in your post, like this:

> Uber, being big and diversified could easily take on that risk and insure against it (or really just self insure with their scale)

Uber is a marketing channel. Why would they want to take on this risk? Why is it "right" for them to take on this risk? Exactly how easy for them would it be? How much would it cut into their profits?

> It's certainly worth thinking about more deeply than simply shrugging and saying that you can't take advantage of someone in a voluntary transaction.

I don't agree with this. It's a free choice, as free as you can get. Yes, some people have better choices than others in life. But just because I can't spend my life making exactly the choices I want doesn't mean someone is taking advantage of me.

Why do some people have better choices than others in life? In particular for people that only have bad choices do we, as a society, bare some of the responsibility for that? Is it a sign that we've done something wrong?

To be clear, I don't have all the answers to these questions, but they are the questions that I ask myself when issues like this come up.

You're making it this big societal argument. I agree that what you are talking about makes sense. It's why we don't allow child labor, for instance.

I'm questioning whether Uber is one of those situations. I don't think you're making it clear that it is, so much as that those situations exist. Which I don't contest.

To what degree do Uber's business practices create (or at least perpetuate) those situations? To what degree are they part of a giant societal machine that creates or perpetuates those situations?

As I move my startup forward I work as an Uber driver and have for the last 13 months. Very simply, fair prices have dropped substantially and it is much harder to make the same amount of money as before, although operating costs are the same or higher. Not to mention the constant risk of catastrophic damage / injury .

Uber can massage numbers all they want but a driver can only take - on average - the same number of fares per hour, so drivers work longer and harder. In that way it is exactly like any taxi job on earth - long, hard hours for low pay with zero equity value accruing. But that is ok, because that is the nature of such a job. Uberx is a tremendous (r)evolution for the consumer but for the driver... not so much. Driving for Uber is a blessing for me because it allows me to control how many low-paying, high-risk hours I need to fulfill to make my entrepreneurial nut per week - and it works for now. But for the the mainstream driver - hey, the new boss looks a lot like the old boss in all the ways that really count. Uber on!

I've signed up (as a user, not driver) for Via, Gett and Lyft. I believe drivers can do the same. As long as they don't collude and are constantly competing, it could be good for everyone. That said, I still prefer yellow cabs and use them when possible.

surge pricing not taken into account?

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