[416] How Uber’s 40% Rate Reduction is Killing Uber. In Lagos!

My last Uber trips checked out as N390 for a trip of 15:35 minutes and N1307 for a trip of 35:02 minutes. About 4km and precisely 16.64km respectively.

When it comes to Uber, I’m consumer-facing. Not a supplier. Not an investor. Although it checks out as one of the companies I’d love to invest in sometime in the future [alongside Amazon, Facebook, Apple, Google and AirBnB], I currently only demand.

Still, I had a supply-side problem with both trips when I paid. Real big problem!

May 4th: Uber sent a mail to notify me there’s been a 40% price slash, effective immediately.

It didn’t pique my interest that much because I didn’t see myself going out of my room in the immediate future. So, I glossed over it.

But my subconscious picked on it and did quick maths. The quick maths I remember was 40% decrease for a trip of N2,500 = N1,500.

I didn’t see the logic behind this. Or, the sustainability.

Drivers need to buy fuel, there’s implicit cost, maintenance fees and break even/profits.

I still don’t see it.

Prior May 4th, these respective trips of N390 and N1307 were originally N1,000 and N2,500 respectively.

Recently, these trips clocked a decrease of 61% and 47.72%.

On one hand, 21% higher than the proposed rate and on the other hand [which should be my left hand], 7.72% higher than the proposed rate.

It seems someone at Uber [Lagos] lied!

Here’s a hint on how Uber works.

Uber is a platform of registered cars that can be digitally hailed; the tech generation of kabu kabu.

Prior, you’ll go stare into the distance for a yellow cab with black stripes.

Now, you stare into a screen and, “Hey! Uber.”

For every trip, the driver remits 25% to Uber and keeps 75%.

When I put it this way: “…keeps 75%”, it’s too vague.

So this is how the 75% often goes down in Lagos, Nigeria. A: there’s fuel cost; B: there’s implicit cost [energy expended in driving]; C: there’s the emergency costs set aside for vehicle maintenance, police extortion and others.

All these add up and that’s way before the driver thinks about break even and then, profit.

Quick breakdown: again!

At N390 for an Uber ride which seats 4 passengers, it’s approximately N100/passenger.

At N1307 for an Uber ride which seats 4 passengers, it’s approximately N330/passenger.

In a public transport, same distance per passenger respectively checks out as N200/passenger and N300-N320/passenger.

So, it makes much more sense for a consumer to ride in an Uber than public transport: comfort, safety [subjective], speed, good aeration.

If I‘ve got full-time team players working with me, rather than own a company bus to cover for Transport Allowance, I’ll Uber them to work [round trip] every day.

See? Makes sense for individuals and companies but…

…It makes no sense for drivers to keep driving an Uber: there’s little or no profit.

From my experience in business, this is what happens when it‘s a win-lose [consumers on the left, suppliers on the right] scenario in business. Consumers patronize more because it’s a win for them [I can aggregately question the spillover effects of this win but let’s leave that aside].

Since it’s loss for them, suppliers stop supplying if there’s a union.

For Uber [Lagos], the much I know, there’s no union asides the my-friend-drives-an-Uber-and-I-drive-an-Uber-too plus I-think-his-neighbour-just-signed-up-as-an-Uber-driver-yesterday. This sort of ish!

So…we eliminate unions. Because no unions.

If there’s no union, supply decreases.

Before I could get the N390 trip to my location, I had 3 cancelled trips. One driver said he’s quite far away, the other said he’s rounding up a trip nearby but didn’t know when he’d be done and the other said…I can’t really remember what he said right now but I hung up.

Prices shoot up. A surge arises!

New Year 2017, a trip of an hour to Ikeja was N9,000-N10,000 as against the standard N2,500. That’s about 4x surge!

Consumers flee to public transport or other taxi hailing platforms like Taxify, etc. and demand decreases. Others rush back to the local means of taxi’ing: aka Kabu Kabu.

Kabu Kabu drivers chop off their heads i.e. inflate their rates, somewhat in a revenge mission for abandoning them when Uber came to town.

Endless cycle! The transportation system takes a hit.

Uber starts dying slowly [or quickly, dependent on supplier-abandonment ratio] and other taxi platforms take over and hopefully, take a huge share of the market — and makes it better for drivers and consumers.

Uber doesn’t get to die if she’s decided to take 10%-15% from drivers. In that case, there’ll be resistance for a while and then, the market will balance.

Else, RIP Uber Lagos!

Image Credit: TheIndependent.co.uk | Nairaland.com