Uber: An Overview

Uber and its competitors such as Lyft have dramatically changed the personal transportation industry, with a mix of both benefits and drawbacks for customers and drivers.

The ride-sharing business revolutionized a business model that had been functioning in the same way for generations: On a busy city street, a person in need of a ride stood on a street corner and waved down a taxi. On quieter streets, the person would phone a local car service and request a pickup.

Now, there's an app for that.

Bright-yellow taxicabs once dominated the streets of Manhattan. By 2020, there were four times as many ride-sharing vehicles on the streets as taxis. Those vehicles were summoned by apps offered not only by Uber and Lyft but by Via, Juno, and Gett.

Key Takeaways

  • Ride-sharing services disrupted the taxi and limo industry, replacing steady jobs with gig work.
  • Ride-sharing services offer door-to-door convenience, safety, and reliable quality.
  • They are not necessarily cheaper than a taxi, and a short trip may be more expensive.

Advantages of Uber

E-hail services like Uber made it fast and easy to hire a driver using a smartphone from almost any location at any time. ("Almost" because drivers are in short supply in outer suburbs and rural areas.) Proprietary software locates drivers circling nearby and generally offers a selection of options, from the cheapest carpooling choice to luxury wheels. The price is set and paid in advance.

Uber's famous "surge pricing" revises the cost of its services from hour to hour based on local demand. As more calls are made, prices tick up, drawing more drivers out to score customers. As demand subsides, prices tick down.

Uber and its competitors have several distinct advantages over traditional taxis:

Convenient and Cashless

Instead of chasing down a taxi on a street, or calling and waiting for a car service, e-hail app users can hail a car from any location and have it arrive in minutes. Uber doesn't even need to ask you for an address. It knows where you are.

Because the passenger's credit card is linked to the e-hail account, no cash changes hands. At the destination, the driver stops the car and the passenger gets out and walks away. A receipt is sent via email, with links to options for rating and tipping the driver.

Professional Service

Drivers for Uber and its competitors use their own cars, and they seem incentivized to keep them clean and well-maintained. The cheapest options are late-model compacts, not junkers.

The riders input their destinations into the app, and the drivers use navigational software to get there. Wrong turns are unlikely.

The drivers are generally polite and well-spoken. They never refuse to take you to any particular destination. They don't even know your destination before they accept your call.

Does this sound like a case of damning with faint praise? That depends on what city or cities you were accustomed to catching taxis in.

Unprofessional drivers are weeded out because passengers get to rate the driver’s performance. A consistently low rating will force a driver out of Uber or its competitors. 

All of the above and more foster a positive experience for ride-sharing customers.

Competitive Pricing

Uber can be less expensive than a taxi or car service, but not consistently.

According to Consumer Reports, longer trips are generally cheaper by Uber but short trips can be more expensive. And the vast majority of trips by Uber are short. So, an Uber ride from the airport to a suburb should save you money but a mile-long trip across a neighborhood could well be cheaper in a cab and would definitely be cheaper by bus or subway.

Consumer Reports also warns that the surge pricing model for both Uber and Lyft can mean much higher prices at busy times of the day.

It is impossible to come up with a definitive or average price for an Uber. Its pricing scheme varies with every city, and that surge pricing model changes the prices constantly based on demand.

One point in its favor: Uber tells you exactly what the prices will be for the options available at that time before you confirm the trip.

Safer and More Flexible for Drivers

Safety is an important advantage for drivers working with Uber and other e-hail services. The riders using the service have registered their identities and their credit card numbers on the app. They are not random strangers on the street.

Because the transaction is cashless, a driver doesn't risk unpaid fares or need to carry cash for change.

Rude, aggressive, and disruptive passengers are weeded out because drivers rate their customers. Consistently low ratings or reports of unsafe behavior toward drivers can cause the deactivation of an account.

Unlike yellow cab taxi drivers who work 12-hour shifts or black car drivers who are scheduled by dispatchers, Uber drivers enjoy considerable freedom and flexibility. Drivers log in and out of the system anytime they choose and pick their own hours (within limits set by the company to avoid sleepy driving).

Drivers avoid expensive taxi rental leases by using their own vehicles. They also pay their own fuel and maintenance costs. All else being equal, this may mean more profit for drivers. 

Drivers are also spared any office politics because the app renders dispatchers irrelevant.  

With cheap prices and readily available cars, customers get into the habit of taking a car for very short distances. The costs can add up quickly.

Disadvantages of Uber

Uber has become a prime example of the gig economy at work. Its workers are not guaranteed a minimum wage, supply and maintain their own vehicles, and have few if any benefits.

That is becoming controversial in some cities where Uber operates. New York City mandated a $17.22 minimum wage for drivers. California legislators passed a law classifying ride-sharing drivers as employees, not independent contractors, but the state's voters later reversed that by voting the opposite in November 2020.

Surge Pricing

"Surge pricing" for Uber, or "prime time pricing" as it is called by Lyft, is controversial among customers. It's a classic use of the free market principle of raising or lowering prices according to supply and demand. For Uber customers, this means how many cars are available (supply) and how many passengers want to ride in them (demand).

Compared to a straightforward surcharge, this automated system can lead to quite dramatic differences in pricing between any two points. At super peak times, a price could double or triple. That can mean a hefty expense during rush hour or during a snowstorm.

Safety concerns have emerged in some cities and states where the transportation industry regulations are lax and it's easy to enter the e-hail network as service providers. Although this has a positive effect by increasing the supply of drivers, these drivers might not be as motivated to reach high standards of professionalism and safety.

Low Fares Hurt Drivers

Some Uber drivers say they struggle to earn even a minimum wage once Uber takes its cut. They also bear most of the costs associated with the service, such as fuel, maintenance, and repairs.

With competition from other ride-sharing services and the continuous hiring of new drivers, average earnings are being pushed downward. This means that drivers have to work longer hours to earn an income comparable to what they would have earned a year or two ago. 

Negative Impact of Price Competition

Price competition can be destructive for any industry. Increasingly, Uber, Lyft, and other e-hail services are engaged in an intense battle to provide the cheapest service. They are directly competing with existing traditional taxi and car services for both customers and drivers. 

This has led to a precipitous drop in earnings for taxi drivers. Prices for New York City taxi medallions, essentially a metal permit to drive a cab, plummeted from about $1.3 million to $160,000 over a few years, leaving drivers scrounging for rides and drowning in debt.

Disclosure: The author of this article has an affiliation with Uber, Lyft, and HailO.