It was the holiday season in San Francisco in 2013. Office parties were in full swing, and people were boozing and reveling. It was a good night for Uber drivers to make extra cash picking up passengers.
Peter Ashlock was driving for Uber that night, as he is on most Friday nights, and got a passenger heading to the airport. The typical fare for an airport ride back then was about $65. But this passenger ended up being charged $179 due to Uber's surge pricing, which is the company's practice of raising prices for rides when demand is high.
"I felt really embarrassed for him and could only stammer that it was not my doing," Ashlock said. "I am among those who seriously question the whole rationale behind surge pricing. How can it be seen as anything but opportunistic?"
While Uber has built a multibillion-dollar business by connecting passengers with drivers via a smartphone app, few topics court more controversy than surge pricing, which typically happens during rush hour, bad weather, big events or on certain holidays. The company says this practice is critical to getting more drivers on the road when demand is at its greatest.
But most Uber riders despise surge pricing. They've complained about running up billsand have criticized the company for using surge pricing during emergencies, like and the . The San Francisco Better Business Bureau because of complaints related to surge pricing. And New York lawmakers have even proposed legislation to put limits on how high fares can go. Now some drivers, like Ashlock, are also having second thoughts on surge pricing.
His sentiment runs counter to Uber's long-stated position that surge pricing is a bonus for drivers because it lets them make more money. Besides helping drivers, Uber also says it does all it can to warn passengers when surge pricing is in effect, so no one gets caught off guard.
"Almost no other company does as much as Uber to make sure users are aware of price changes, including multiple warnings, requiring riders to confirm they are accepting a higher rate, and sending automatic notifications when prices drop," said Uber spokesman Matthew Wing.
'Hide and seek'
Suleman K., who didn't want to use his full name, has been a full-time Uber driver in New York City for the past two years. When he first started, he used to hustle over to surge areas only to find the high prices had stopped or moved to another zone. Now he doesn't bother driving to neighborhoods that are surging since the notion of constantly shifting fares can be frustrating.
"Many drivers I know would rather rely on a steady rate where they can make a living instead of chasing the surge," Suleman K. said.
A glance through driver forums on websites like Reddit, Quora and Uber People shows that driver reaction to surge pricing is mixed. Some drivers appreciate surge pricing and say higher rates help them make ends meet -- especially since Uber hasover the last year. Other drivers say passengers agree to the rates, so there's no reason for the riders to be surprised by trips that cost hundreds of dollars.
But many drivers say they don't like the practice. And it's more than just feeling guilty about high prices. Drivers like Suleman K. say a fixed pay rate, rather than relying on periods of demand, would make their earnings more reliable. Others say that when they get a low rating from a passenger, it's likely during surge pricing. Some, like Ashlock, say surge pricing could also mean fewer rides.
"Often enough when they turn it on, business drops because people see it and either switch to Lyft or find another way to travel," Ashlock said. "I have had passengers who say they would be happy to pay a higher overall fare that was stable rather than the fluctuating fares caused by surges."
Customers have complained that they'll request a ride, it will unexpectedly be canceled, and when they request another ride surge pricing appears. Ashlock said this happens on his end too.
"I accept a fare and suddenly it is canceled and surge prices fire up," he said. "It irritates the hell out of me."
Researchers at Carnegie Mellon University released a study (PDF) in April, in which they interviewed 21 US drivers, and concluded that more than half weren't motivated to go to surge pricing zones. The surges changed too quickly and unexpectedly and didn't guarantee them rides, according to the drivers.
"[Drivers] felt like they were playing a game of hide and seek," said postdoctoral fellow Min Kyung Lee, who led the study.
Uber has more than 1 million drivers and typicallyfor each fare. So not only can surge pricing reportedly help drivers make extra money, it can also mean more cash for Uber. But the world's largest ride-hailing service says profit isn't what it's after.
"It's not about money, but about providing transportation that is as reliable as running water," Wing said.
With surge pricing, drivers can see in the app when an area is having high demand. The idea is to give them incentive to head to that zone. As more drivers pick up passengers from that area, demand is supposed to go down and prices will drop.
Alternately, the more demand there is, the higher the surge. So the fare can be anything from double the original price, which Uber denotes as 2x, to eight times the original fare, or 8x. Theoretically the number could keep going up, but Uber says surge pricing rarely gets higher than 2.8x. The company also says that if passengers don't want to pay the higher price, they don't have to accept the ride. Uber's rival Lyft has a similar feature called Prime Time, but it's capped at 3x.
Uber often uses the argument that this type of dynamic pricing is used in all sorts of industries. Hotels raise fares during the holiday season, as do airlines. Restaurants also charge more on certain days, like New Year's Eve and Valentine's Day. Uber says that in a big city like New York, less than 10 percent of trips have surge pricing.
"Airlines and hotels are more expensive during busy times. Uber is as well," co-founder Travis Kalanick wrote in a 2013 Facebook post that was a response to a passenger who was angry about surge pricing. "We don't just charge to make a buck though, we take a small fee of the transaction, but the vast majority goes to the driver so that we can maximize the number of drivers on the road. The point is in order to provide you with a reliable ride, prices need to go up."
A push for limits
Not everyone agrees with Kalanick. Lawmakers in New York proposed two different bills in the last year to address the issue. The first, introduced in the state legislature by Assemblyman Felix Ortiz in December, seeks to ban surge pricing.
"This is nothing more than price gouging," Ortiz said in a statement at the time. "Alternatives for transportation in busy cities are always welcome but this practice of spiking fares is unfair and is simply bad business."
The second, introduced by New York City Councilman David Greenfield in January, intends to cap surge pricing at 2x, or twice the base fare.
"Just because it rains outside doesn't mean you should pay $500 for a $50 ride," Greenfield said, noting that taxis can't charge more than 20 percent over their base fare. "The yellow cabs are regulated, it only seems fair that we should regulate all the others."
New York Mayor Bill de Blasio is reviewing the legislation, according to his deputy press secretary, Wiley Norvell. And this isn't the first time the city has taken a stance on surge pricing. The New York City Taxi and Limousine Commission approved regulations in June that require Uber and Lyft to display the dollar amount of a surge price in the app before a ride is requested. The ride-hailing services are also required to give passengers a total fare estimate, ensure riders accept the surge price and provide passengers with an itemized receipt.
Capping surge pricing is likely the next step around these consumer protection measures. Greenfield said that paying drivers double during high demand seems fair and will still encourage them to get on the road. And some drivers say they would welcome such caps.
"It will help the consumer because they won't feel like they're being price-gouged and take it out on the driver by giving him a bad rating," Suleman K. said. "It's nice to make extra per trip but there should be a limit."