Uber: Ride-hailing Price and Utilisation

How do you look at making a price cut?

The way I look at price is an optimal price at a certain scale. The optimal price is always the lowest price possible. How do you get to that with the scale you have, and how many weeks are you willing to invest in? We always want to think a bit ahead because price cuts are very painful. So, say you want to invest three months—what scale can we get to three months? Maybe we can double it. So, at that scale, we had 100,000 trips, we want to get to 200,000 trips. At 200,000 trips, what can be my utilisation? How busy can a driver be? Say, 40 minutes in an hour, maybe 45. What’s my average trip? That’s how many trips a driver can make per hour at this scale. How much does the driver need to earn? Then, that’s your pricing.

So how much a driver earns is a key factor in deciding that price?

Exactly. Germany lost two years because we did two aggressive price cuts. We made a model, we did extremely thorough work. We looked at all the costs the driver has, and Germany wants to make the pricing so that the driver doesn’t make any money. Instead of £11, it might be £8, and that just kills the market. We wasted millions over that time, legal stuff, keeping the business alive, and our salaries, instead of setting the price right so that the driver earns money.

Another interesting fact from that paper, again, in London: 30 hours spent per week on the app, 19 hours of which were driving. Is that a good utilisation rate?

You should aim for 80%, but 65% is okay. It’s good, but it should be the minimum. The key to the whole business is having the highest utilisation possible and pushing it to the absolute maximum. That is the governing thing of the whole ride-sharing business, in my opinion.

So, the higher the utilisation, the more frequent the journeys, the lower the price, the higher the earnings—or the same earnings?

Ideally, the higher earnings. First, there’s tips, in a bunch of markets. The more journeys, the more tip potential, and that’s super-underappreciated. That’s much more fun for the driver. There’s nothing worse than being a South Africa driver and waiting 40 minutes to get a ride. So boring. You feel so worthless, you feel like you’re not doing anything with your life, and the time goes by extremely slowly. Whereas a Friday evening, you get in the car and suddenly the night is over because you’ve been busy, you’ve been moving, meeting people—it’s a fun experience.