Uber's Hidden Move: Uber Slashed Commissions to 5% in 2015

Uber's Hidden Move: Uber Slashed Commissions to 5% in 2015

Uber has unsucessfully tried to adopt Amazon's 'customer obssession' model and applied it only to their riders. Most riders only wish for high supply and cheap rides making it very easy to show "customer obsession" by giving riders massive discounts and flooding the market with no limit on drivers. Both strategies hurt individual drivers wages but Uber's obsession is not heard in the Drivers' hemisphere.

In 2015 after Uber and Lyft's massive funding rounds, their first massive promotions to drivers and riders began as explained by Ellen Huet. "The driver promotions were eye-popping and clearly unsustainable: Do you drive for Uber? Here, Lyft will give you $500 to give 10 Lyft rides. Drive for Lyft? Uber's got $500 for you -- plus a guarantee that you'll net $45 an hour until the end of June. Refer a driver to Uber? Here's $500 for you and $500 for your friend, too."

To reel in users, companies made rides cheaper and cheaper, which angered drivers. During this time, Uber was cutting fares in 48 cities across the U.S., hoping the low prices will fatten up ridership during the cold winter months -- and this time, it's also hoping the fine print will lock in its drivers and keep them away from rivals, especially Lyft.

This was only a year since Uber started its great fare-slashing war with Lyft. In January, Uber was the first to hack away at fares, slashing them 20% in many cities. Ridership shot up, and while drivers grumbled, they were completely fine with it because Uber also cut its driver commission in the US from 20% to 5%.

But Uber was not prepared for that sudden change in their entire business model across the U.S. and at rate they lost money on every ride. Only 4 months after dropping their commissions to 5%, in April, it began taking a 20% cut again -- but didn't raise any ride prices back up, which meant that the drivers now made much less for the same exact work.

Soon Uber also realized that their Drivers are very unhappy and their strategies to increase ride volume daily through promotions was not going to keep the Drivers happy at 20+% commissions and additional fees. Its next move? Cutting fares, but paying a subsidy on each ride for drivers to be okay with it.

Since 2015 there have been numerous changes that the company has undergone but they have never tried to change their business model. If you are interested in knowing what lead them to not changing it one percent since the last 5 years check the next article here.

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