Uber “upfront pay:” the view from the driver’s seat

by Len Sherman

–Reprinted with permission–

Taxi News received permission from researcher and author Len Sherman to serialize his work, “The Inconvenient Truths Uber’s CEO Doesn’t Want You To Know.” As Uber launches its “upfront pay” algorithmic changes in Canada today, we are linking the final segment and the three earlier pieces to help readers understand the mathematical realities behind the promotional language being used to describe the new system and how it may impact drivers.

October 8, Part 4: View from the driver’s seat

Read Part 1: The Inconvenient Truth Uber’s CEO does not want you to know

Read Part 2: The combination of elevated prices and driver pay cuts enabled Uber to achieve a take rate of 40% in Q3 2023

Read Part 3: Why Uber pushed back so hard on these findings

by Len Sherman

–Reprinted with permission–

“We the drivers are subsidizing what Uber is giving to the rider.”

View from the Driver’s seat

Uber is certainly not alone in limiting the information publicly traded companies disclose about their operations. Over the years, Amazon, Apple, Google and others have also been criticized on similar grounds. For example, Amazon launched its cloud services business in 2006, but took ten years before it was willing to release any data on the scale and profitability of AWS, Amazon’s most profitable business unit. What does make Uber unique however is its CEO’s repeated claims about his company’s full transparency.

For example, here’s how Dara Khosrowshahi explained his philosophy on corporate transparency in late 2019 at the Economic Club of New York: “We have to be transparent with our stakeholders and society… I think trust first comes with transparency. As a company, we are being much more transparent. And I think there’s a demand of society for companies that, especially digital companies that I think in the past had kind of a data advantage, to be transparent and put their data out there.”

The following year, Khosrowshahi penned an op-ed for the New York Times provocatively titled: “I Am The C.E.O. Of Uber: Gig Workers Deserve Better,” pledging “we have to be more transparent about what drivers make and the realities of the work.” Yet, three years later, based on my research, and discussions with hundreds of drivers, under Mr. Khosrowshahi’s watch, drivers have become increasingly disadvantaged by Uber’s opaque AI-driven pay-setting algorithms, working harder and earning less, despite soaring auto ownership and operating costs.

When I asked a number of veteran drivers what they would suggest if given the opportunity to talk directly to Uber’s CEO, here’s a sampling of their responses.

Pablo Gomez — Uber driver experience: 3.5 years
“I’ve been driving for Uber for 3.5 years, but I’m not driving much for them lately. I mostly do Lyft. I work mostly from LA airports, and about three months ago, Uber really slashed their pay. Looking back, Uber’s pay was really good as the economy came out of the pandemic in 2021 and 2022, but within a couple of months of upfront fares coming in, you could see that’s when they took control and slashed their pay. In the old days, Uber’s pay was more predictable. I used to be able to do pretty good, knowing where to be when, to make good money. With upfront fares, I feel like I can’t beat the machines. It’s like playing the slots in Vegas. The house always wins. It’s a trap and I’m losing the game. I’m not making anywhere near what I used to make.

If I could talk to Dara [Khosrowshahi], I’d suggest three things: Transparency, Consistency, and Simple Arithmetic. The way that things are now, there’s no rhyme or reason. The opaqueness of their whole system lends itself to a lot of funny business.

Before, if a ride was a hundred dollars and then Uber was taking, let’s say, $ 30 or $40 of that $100. Now it’s $100 and I see rides where Uber is taking $60. Mr. Khosrowshahi, don’t come and tell me that you’re not making money on that $100 because your insurance rates went up. So have mine!

In the old days, VCs were subsidizing low passenger fares. Now we’re the sub. We the drivers are subsidizing what Uber is giving to the rider. It’s the driver who is keeping rider prices artificially low. Uber is not sharing their wealth with drivers because they don’t have to. Now, there’s a black box algorithm that just gets to price whatever they want, based on your habits, and I’m competing with people who are desperate, and who are doing any rides, and that just keeps suppressing driver pay.”

Kyle Kessenich — Uber driver experience: 2.5 years
“I recently left Uber for Lyft because of the complete lack of value Mr. Khowrowshahi shows towards his drivers. He needs to put more emphasis on the lifeblood of Uber and show more appreciation for experienced drivers, instead of constantly putting drivers in a position of racing to the bottom. Uber’s policies are pushing out his best and most experienced drivers, particularly those like me who drive full-time in a relatively new Tesla. Instead, he’s constantly bringing in new drivers in beater cars that degrade Uber’s customer service. I also recommend that Uber be more transparent with its pay and don’t do all this ‘Uber math,’ playing games with different drivers getting different pay rates and bonuses all the time. I’m definitely a proponent of going back to a rate card.”

Sean Celik — Uber driver experience: 2 years
“I started driving just as upfront fares were coming in, and fares were pretty good. I was making some pretty decent money, with bonuses. As a business owner, I didn’t expect bonuses, quests, and everything else to be going on for too long. but I didn’t expect it to completely go away.

In, 2023, I remember, vividly, actually, around the November of 2023 when I stopped getting any type of quest or any type of bonuses and I also noticed the upfront fares started to drop tremendously. I remember thinking, there’s no way I’m getting $6 offers, for 20-minute rides; I thought it was just for the day. But the next day I go on and it’s the same thing — upfront fares were no longer favorable for the driver. That’s when I realized something is definitely going on here, and it’s not right.

I worked in corporate America for a long time. There was always an explanation or reasoning behind what my company would do and why when I worked at T-Mobile. They say, ‘okay, we gotta make these types of cuts and we have to push this type of product. And this is the reason why,’ right?

I understand making or earning money from Uber is different: I’m not directly employed by them. However, this gaslighting campaign that they started: ‘Oh, our drivers love it! You know they’re making $32 an hour on average’. I was listening to it, and going ‘come on, man.’ And it’s not like we can call somebody up and go. ‘Hey, where’s my $32 an hour?’

It’s the old churn and burn so they don’t mind losing drivers. Yeah, I mean, if I was running a business, I too would want as many people as possible. But the churn part of it is people not staying because they don’t believe in the company anymore. But the company doesn’t care about that. They only care about the shareholder aspect of it. And it takes a while for new drivers to figure out Uber’s games.

The part that I don’t understand is their lack of transparency. Instead of trying to let us know: ‘Hey, guys, you are human. We understand you. We hear you. This is what is going to be coming up.’

It doesn’t affect my pocket as much as it does for full-time drivers who drive 70 to 80 hours a week. I talk to some of these drivers, and my heart goes out. You know some of them sleep in their car. They still believe in Uber, because they believe that the good times are going to come, but they keep falling into this mouse trap.

Uber and Lyft. are wonderful services. But again it goes back to the human side of it…how do your drivers really feel when they’re doing this? If I had the chance to talk to Dara Khosrowshahi, I would be very straight up with him and ask why he isn’t being honest with his drivers. Why is it that he gives a different type of message to the shareholders and the news media outlets than he does to the drivers?

But I know he’s afraid of these types of questions. That’s why he will not have a town hall. or some type of get-together with drivers who’ve been driving for a while, the ones who would love answers because he should want me to create a good perception of Uber. What they have now is not sustainable.”

Trust Requires Transparency
Uber has lost the trust of its experienced drivers. The sentiments expressed above are echoed by hundreds of other drivers I’ve interacted with over the past couple of years.

When asked to share feedback on Uber’s efforts to monitor driver sentiment, a spokesperson replied:

“We cannot share confidential Uber data with you just because you’re writing a blog post, and that includes raw survey data from our drivers… But we will emphasize again that we continually conduct large-scale driver surveys. We randomly survey US drivers directly in the app as well as conducting blind surveys through a third party, resulting in thousands of responses around sentiment every single day. Also, as we’ve shared, looking at a combined view of this data over the last 2 years, driver satisfaction and favorability have remained positive and stable; they of course fluctuate, but there have been no persistent or recent declines, as you assert based on the small and non-representative sample of drivers that you’ve spoken with.”

On any given day, Reddit, X (née Twitter), and YouTube are filled with posts from drivers sharing screenshots of low-paying ride offers, often accompanied by indignant commentary too colorful to share here. Organized driver groups have formed around the country serving as forums for local grievances, in many cases supported by political action groups lobbying for gig work regulations. To capture and amplify this zeitgeist, numerous podcasts and videocasts have emerged, highlighting declining pay and work rules that violate their status as independent contractors, along with tips on how to make the best of an ever-more challenging business.

But sadly, Uber’s CEO and a growing number of his company’s drivers appear to be talking past each other.

It doesn’t have to be this way. Flourishing companies in industries that Uber cited as worker pay comparables in its 2019 IPO prospectus (retail, wholesale, restaurant services, and other similar work) have a distinctly longer-term perspective on the strategic value of customer-facing employees. Take the US retail sector. The two most successful US grocery retailers over the long term have been Costco (3X greater shareholder value growth over the past five years than Walmart or Kroger) and privately owned Trader Joe’s (4X higher sales per square foot than Walmart or Kroger). Sure, there are differences in the cost structure and business models of grocers and rideshare companies. But both industries operate in fiercely competitive sectors, with thin margins and significant customer-worker interactions (arguably even more important in the ridehail industry).

Nonetheless, from the beginning, Costco’s and Trader Joe’s founders recognized the importance of front-line workers to their company’s long-term success. Here’s what Trader Joe’s founder Joe Coulombe had to say:

“You can’t afford to have cheap employees. Time and again I am asked why no one has successfully replicated Trader Joe’s. The answer is that no one has been willing to pay the wages and benefits, and thereby attract — and keep — the quality of people who work at Trader Joe’s.”

Costco founder Jim Sinegal echoed similar sentiments.

“Paying your employees well is not only the right thing to do but it makes for good business. It doesn’t do much good to have a quality image, whether it’s with the facility or whether it’s with the merchandise, if you don’t have real quality people taking care of your customers.”

The founders/CEOs of Costco and Trader Joe’s were as highly regarded by investors as by front-line workers, who they often met during unannounced store visits. By executing highly differentiated strategies, supported by strong business models, and equitably sharing company profits with all stakeholders, these CEOs positioned their companies for enduring success.

In contrast, Uber’s strategy has yielded substantial short-term shareholder returns –150% in 2023 — at the expense of its US drivers, who suffered a double-digit earnings decline in 2023, and aren’t faring much better this year.

Mr. Khosrowshahi’s public appearances mirror the company’s prioritization of shareholders over workers. While Uber’s CEO maintains an active presence at investor forums and business-oriented podcasts, you won’t find him interacting with drivers at organized or impromptu meetings or accepting invitations for podcast interviews hosted by and aimed at Uber’s driver’s community.

Companies that alienate their front-line workers, particularly in services businesses, rarely do well over the long term. Adverse consequences include higher turnover, reduced productivity, and degraded service quality, leading to lower customer satisfaction and loyalty. These conditions in turn often invite new competition and regulatory oversight, as we’ve already seen in Uber’s rideshare and delivery businesses. Minnesota and Massachusetts recently joined New York, Washington and California in reaching agreements with Uber and Lyft to guarantee drivers minimum pay rates and additional benefits.

Perhaps no one has studied the relationship between worker engagement and long-term corporate success more than Fred Reichheld, a Bain Fellow, creator of the Net Promoter Score system and author of “Winning on Purpose — The Unbeatable Strategy of Loving Customers.” In his four decades of advising corporate clients on long-term growth strategies, Reichheld has written:

“If you wonder what getting and keeping the right [workers] has to do with getting and keeping the right customers, the answer is everything. Without trust, there can be no loyalty — and without loyalty, there can be no true growth.”

And…

“Too many companies these days can’t tell the difference between good profits and bad…. You’re probably wondering how in heaven’s name profit, that holy grail of the business enterprise, can ever be bad. Short of outright fraud, isn’t one dollar of earnings as good as another? Certainly, accountants can’t tell the difference between good and bad profits. They all look the same on an income statement. While bad profits don’t show up on the books, they are easy to recognize. They’re profits earned at the expense of customer relationships.”

The ball is in Uber CEO Dara Khosrowshahi’s court. He said the right thing in headlining his 2020 New York Times op-ed: “I Am the C.E.O. of Uber. Gig Workers Deserve Better.” It’s time to take actions that match these words. Here are some suggestions that would better serve all of Uber’s stakeholders over the long term.

· Establish more open and responsive channels of communication with Uber’s driver community, including regular comprehensive surveys of driver satisfaction to monitor the impacts of company policies, town halls, and improved dealer support services. Too many drivers do not currently feel heard, valued, or respected.

· Relatedly, be more transparent and honest in communicating how Uber’s business practices impact all company stakeholders. Uber’s CEO can’t just declare “perfect transparency,” he has to earn it. The driver quotes included in this article reflect the growing dissatisfaction of a large segment of Uber drivers who perceive that Uber is not being straight with them. It is Uber’s responsibility to understand and address current sources of misunderstandings, distrust, and demoralization.

· Reinstate minimum $/mile and $/minute pay rates, providing adequate pay per working hour. As recently legislated in Washington and Minnesota, rate minimums can be higher in populous metro areas and lower elsewhere. But in any case, Uber should eliminate predatory pay offers that barely or don’t even cover a driver’s vehicle operating costs, financially harming drivers and tarnishing Uber’s reputation.

Uber doesn’t have to wait for state or national regulation to enact pay rate minimums nationwide. Rate cards have been a hallmark of Uber’s corporate policy for all but the last two years. There will undoubtedly be a vigorous debate over what “fair” minimum pay rates should be, but there should be no debate over the need for acceptable minimums that take driver utilization and vehicle operating expenses into account. Uber can and should continue to use dynamic pricing to manage supply/demand imbalances and retain the right to earn as high a take rate as the market will bear. But Uber will not regain the trust of drivers as long as there is no pay rate floor which currently enables the company to boost profits by cutting driver pay.

· Accelerate collaborative efforts with government agencies seeking to improve other aspects of driver work conditions. Uber’s own past surveys have highlighted the areas of greatest driver concern including safety, sick pay, deactivation protections, improved support services, and faster dispute resolution.

· Recognize that Uber will predominantly rely on drivers to transport people and goods for the meaningful future. As Mr. Khosrowshahi acknowledged earlier this month during Uber’s Q2 2024 earnings call, “autonomous vehicles are not something that we’re going to look to make substantial profits from over the next five to 10 years.” Rather, Uber’s nearly 7.5 million drivers worldwide — more than three times the number of employees at McDonalds or Walmart — will continue to serve as the backbone of the company’s business. So the well-being, satisfaction, engagement, productivity, and retention of Uber’s massive workforce is critical to the company’s success. But you’d never know it from the company’s commentary during Uber’s most recent earnings call, during which Mr. Khosrowshahi said: “on the mobility side, more driver supply brings down prices for riders and improves reliability,” and “as driver supply improves, surge comes down, ETAs improve, the service itself becomes more compelling.” These comments signal Uber’s overwhelming bias toward improving its rider value proposition over driver earnings. After all, how would more driver supply bring down rider prices, if not by cutting driver pay? And if increased supply makes Uber’s service more compelling for riders, what about the value proposition for drivers? Uber’s CEO seems to be suggesting a limitless, fungible supply of drivers, regardless of the pay the company offers. But this assumption is illogical and unsustainable, as is already likely evident in declining US driver acceptance rates and increasing rider wait times — two metrics (among many others) that the company will not disclose.

In conclusion, Uber’s recent profit improvement puts Dara Khosrowshahi in the pantheon of greatest CEO turnarounds of all time (e.g., in the good company of Steve Jobs at Apple and Reid Hastings at Netflix). Along the way, Uber’s CEO has often praised the efforts of his Marketplace group that develops the company’s AI pricing and pay algorithms. But while Uber’s Marketplace wizards have effectively exploited the financial hardship of a growing precariat workforce, enabling Uber to algorithmically optimize driver pay cuts, Khosrowshahi shouldn’t forget the contributions, value, and dignity of Uber’s human workforce, without whom the company couldn’t deliver people and goods to enrich the company and its CEO.

An Uber spokesperson agreed with this sentiment, commenting:

“We, more than anyone, appreciate the importance of drivers on our platform. We know that we can’t be successful unless they are and, while we may not always get it right, we are committed to continuing to work toward a better driver experience. We’re proud that millions of people find flexible work on our platform, but that won’t stop us from always working to be better.”

Let’s hope Uber’s deeds match their words going forward. Gig workers deserve better.

Len Sherman is the Executive in Residence and Adjunct Professor at Columbia Business School. He previously served as Senior Partner at Accenture’s products industries group and a General Partner in its corporate venture capital group. He has been a board member for five business startups.