UberX: Ride Hailing Pricing

I think a good place to start would be if we could take a step back to when you joined Uber. How were you thinking about pricing for the ride-hailing business?

I joined Uber in 2015, when it was expanding, very rapidly, in some of the emerging markets, like the Asian and the developing markets. At the time, they were also developing new products, like Uber Eats and Uber Pool. Our top process for Uber’s pricing, especially for ride-sharing, was that there were a few areas we wanted to focus on.

First, we wanted to be the cheapest ride-sharing player in the market and that would mean two things. Firstly, we would like to be at least 35% to 40% cheaper than a taxi. The way we thought about this product was, we are not only competing with the taxi, as a product, but we also wanted to compete with public transportation or personal vehicle ownership. If you keep the price of your product, 35% to 40% cheaper than a taxi you could, potentially, compete with public transportation and, also, personal vehicle ownership. That was one thought process that was in our minds, when we were going to a particular market.

We also wanted to make sure that we have back-calculated pricing in such a way that drivers are making enough money, in that particular market. The way we thought about what was enough money, was to look into what were the other top employers in that market. For example, if you think about the US market, you will have Walmart or Starbucks, who are the largest employers. Let’s say, they are paying $15 to $16 per hour, we would like to make sure that, in the long term, on the platform, if the drivers achieve X percentage of efficiency, they are able to make that amount of money, or more than that.

The way we think about efficiency is, the amount of the time that the drivers have the app switched on, that would be your numerator. The denominator would be, for how much time they are on a trip. For each city, we will think what your long-term efficiency, for that market, would look like and, for that efficiency level, we’ll set pricing in such a way that Uber’s drivers are able to make enough money. By taking those two factors into account, one, on the rider side, we want to make sure that the product is 35% to 40% cheaper and, on the driver side, that they are able to make enough money, at a certain efficiency level.

To reach that particular efficiency level, it may take a certain amount of time; it may take six to nine months. Whilst you are working to reach that efficiency level, you want to provide a driver subsidy and a rider subsidy. The rider subsidy is used to make sure that you have the network effect kick in. The driver subsidy is because, during that time that they are reaching that efficiency, they still need to make enough money in the market. That’s how, on the overall picture, we think about the pricing.