Why Hasn't Uber Switched To 5% Commissions Since 2015?
And why not do it now and make everything perfect?
Every year since 2015 a new challenge has prevented Uber from dropping their commissions and instantly facing the risk of bankruptcy:
Their years can be quickly summed in the follow way
: Uber and Lyft were in stiff competition and to gain marketshare gain both companies began slashing fares severley which angered their Drivers. In January, Uber dropped its UberX fares 20% and cut commission from 20% to 5%. But at that rate, Uber lost money on every ride and in April, it began taking a 20% cut again -- but didn't raise prices back up. This meant Drivers suddenly started making much lesser for the same exact amount of work!
Uber was not able to afford to operate at 5% commissions in 2015 because they were at war with Lyft and at the peak of their strategy for rider obsession. Their goal was to gain a larger market share in the city which would then justify a higher commission because every Driver would have more riders every day. This did not work as well and Drivers started earning less. The first Uber Driver protests also started in 2015 due to unfair control over their wages.
: Uber expanded into China and raised an even larger sum of money than 2015 to implement the same strategy of undergoing massive losses to gain market share. They lost this battle in China to their competitors and sold their China business to DiDi.
: Over half a million people deleted Uber with the hashtag #DeleteUber and a very long string of scandals in the same year lead to Travis Kalanick, Uber CEO, stepping down.
: Dara Khosrowshahi was appointed new CEO and he chose not to suddenly change the business model from 25% to 5% and instead prepare Uber for its 2019 IPO.
: Uber becomes a public company and directly dropping commissions from 25% + fees to a flat 5% meant a guaranteed 5X to 10X drop in revenue and stock price for new public investors. Uber instead focuses on diversifying from ride-hailing to be able to show a clear path to profitability for investors. This is clear because in their S1 filing they said that “In particular, as we aim to reduce Driver incentives to improve our financial performance, we expect Driver dissatisfaction will generally increase,”.
: The devastating COVID-19 pandemic lead to 50-100% drop in rides all over the US for months. Uber is now desperate to show a path to profitability to their investors, Drivers are desperate for higher wages and riders are still extremely concered about the safety of travel.
So today, as seen from the outside world, Uber dropping their commissions to 5% seems like the perfect way to rebuild the economy by helping Drivers earn more. But from the world inside Uber, that will be devastating because Uber itself may not exist to help millions of Drivers earn at all!
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