Fast forward a few hours: The ball has dropped, you’ve toasted 2012 and kissed some strangers, and now you’re ready to head to the next party. One problem: So is everyone else, and there’s nary a cab to be found. One solution: Use Uber, the e-hailing app that lets revelers around the world call black cars from their smart phones.
Second problem: To deal with high demand during the early hours of 2013, San Francisco-based Uber is instituting surge pricing, which will likely lead to some serious transportation expenses.
Well, don’t say you weren’t warned. The company emailed customers over the weekend, explaining its surge pricing policy in advance, giving fair warning to the prices they can expect during the New Year’s crunch.
NYE pricing is not for the faint of heart. The average surge multiple will likely be 2x normal prices, but during extreme spikes it could cost you $100 MINIMUM before time and mileage charges! So be careful with those Uber ride requests. Uber rides will be reliable on New Year’s Eve, but they’ll also be pretty pricey.
Here’s a helpful graph:
In case that wasn’t enough, Uber founder Travis Kalanick and Ryan Graves, the company’s head of operations, livestreamed a Q&A session to explain the surge pricing scheme. The basic gist: By charging customers higher fees during periods of heightened demand, Mr. Kalanick said the company creates incentive for more drivers to pick up fares from Uber.
“We work with limo companies and their drivers,” he said, speaking generally of the service in cities around the world. “On New Year’s Eve, these guys have alternatives. They can rent their car out for $1,000 and sit around all night. In some cities, drivers might have relationships with hotels or restaurants where they can get filled very quickly.”
With Uber’s surge pricing system, he said, “drivers know the price is coming up, they go on the system, they stay on the system longer, and more drivers come onto the system.”
Surge pricing, Mr. Kalanick insisted, is more or less revenue neutral for the company, which takes 20 percent of total fares for its black car service: When surge pricing takes effect, demand tends to come down on a roughly linear basis. “When the price goes from 1x to 2x, we’re seeing half as much conversion,” he said. “When it goes from 2x to 3x, we’re seeing a 30 to 40 percent decrease of the number of people requesting a ride.”
Mr. Kalanick has good reason for communicating clearly on surge pricing. Not only is New Year’s Eve the “craziest time of year” for Uber, but 2013 is going to be a crucial period for e-hailing, at least in New York. Earlier this month, the Taxi & Limousine Commission approved a year-long pilot program for taxi apps that will let New Yorkers flag down yellow cabs with their smart phones as early as February.
Meanwhile, with the pilot set to launch, Uber competitor Hailo is said to be closing on a $30 million Series B that will help the company ramp up in the New York market, with Union Square Venture’s Fred Wilson reported as the probable lead investor in the round.
In addition to the livestream and the warning emails, Uber unveiled what it calls a sobriety test for the app: If you want to use your phone to hail a car during a surge period, customers have to enter the multiplier they’re paying to use the service amid high demand. That system worked out well in Sydney, Australia, which Mr. Graves pointed out has already rung in 2013.
At peak hours, Australians paid about 4.7 times the regular Uber fare, but Mr. Graves reported that the company had only received one angry email thus far. Of course, New York is not Sydney. “Australians generally polite in social media channels,” said Mr. Graves. “We hope you’ll be nice to us. We’re doing the best that we can.”