Uber and its competitors have dramatically changed the personal transportation industry in recent years, which has resulted in both benefits and drawbacks for customers and drivers.

Uber: An Overview

Uber and its competitors have made structural changes to an old industry that functioned much the same way it did decades ago: Individuals in need of a cab had to either physically wave at a taxi or call a local car service to reserve a car at least half an hour prior to the pickup time. 

E-hail services like Uber have made it possible to secure a car or taxi via a smartphone from any location. A drawback, however, is that this disruptive technology has reduced the market share of traditional taxi services and lowered the overall profits of drivers.

Advantages of Uber

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 half an hour for a car service—e-hail app users are able to hail a car from any location and have it arrive within minutes. 

Because the passenger's credit card is linked to the e-hail account, no cash changes hands. Upon arrival at the destination, the driver brings the ride to a halt and the passenger can simply walk out of the car. A receipt is sent via email.

Professional Service

In major cities like New York where the taxi industry is regulated, most cars are later models, well maintained and chauffeured by professional drivers who have proper commercial insurance coverage. 

Once a driver accepts an assignment, passengers are able to track a driver's position and route, and communicate with their driver if necessary. A driver only learns the passenger’s destination when the fare starts. This takes care of the problem of being refused access to a taxi because the passenger wishes to travel to undesirable parts of town. 

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. In many cities, like Los Angeles, and states with less stringent regulations (compared to New York), average citizens can provide the Uber service. This increases the number of drivers and makes more cars available. All of the above and more foster a positive experience for Uber customers.

Competitive Pricing

Generally, Uber is less expensive than traditional taxis and car services.

Safer and More Flexible for Drivers

Safety is the most important advantage for drivers working with Uber or other e-hail services. Because the transaction is cashless, a driver doesn't face unpaid fares or need to carry a sizeable amount of cash that might entice a robber. 

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

Unlike yellow cab taxi drivers who work 12-hour shifts—or black car drivers who are scheduled by dispatchers—Uber and other e-hail drivers enjoy greater freedom and flexibility. Drivers can log in and out of the system anytime and choose their own hours. 

Drivers can avoid expensive taxi rental leases by acquiring their own vehicles. This means more profit for drivers, all else being equal. Drivers are also spared the stress caused by favoritism and office politics because the app renders dispatchers irrelevant.  

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

Disadvantages of Uber

Though there are hardly any downsides for customers, there are a few. Drivers also face several disadvantages.

Surge Pricing

"Surge pricing" for Uber or "prime time pricing" as it is called for Lyft, is controversial and a major annoyance for most customers. Surge pricing is a method of pricing in the free market that involves raising or lowering prices depending on supply and demand. For Uber customers this means how many cars are available (supply) and how many passengers want to ride in them (demand).

Depending on the intensity of demand, prices for Uber services may be increased by a certain percentage. At super peak times, they could even be doubled or tripled. These fare hikes take effect during periods of high demand for cars, such as rush hour or during rain and snowstorms.

Trip Cancellations

Although Uber in general is cheaper and more convenient than a local car service or limousine, trip cancellations by drivers can cause disruptions to a passenger's plans (e.g., missed flights). 

Safety Concerns

Safety concerns have also emerged in many cities and states where the transportation industry regulations are lax and average citizens can easily 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

Low prices negatively affect drivers’ earnings. In major cities like New York, drivers are encouraged by Uber to purchase late model cars that can cost upwards of $60,000 to $70,000 (for SUVs and luxury cars). Some drivers still rent cars weekly from third parties. They bear most of the costs associated with the service, such as fuel and repairs. Drivers contribute greatly to the Uber brand.

Initially, drivers used to rely on the surge charges to make up for low fares (as compared to those charged by limousine or car services) and infrequent trips (as compared to those of taxis). However, with price competition and the continued intake of new drivers by Uber and its competitors, 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. 

While this means that there is a larger supply of drivers, longer hours behind the wheel jeopardize the safety of both drivers and passengers. These conditions coupled with customer trip cancellations—which can cause a driver to miss opportunities to make money during the busiest hours—can have a negative impact on drivers’ earnings and morale. 

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 the drop in taxi medallion and black car prices in New York. That is good for drivers, but bad for other traditional taxi and car service groups. 

Key Takeaways

  • Uber and its competitors have made it possible to arrange car transportation from any location using a smartphone.
  • This type of personal transportation provides all the benefits of traditional taxi services with additional conveniences.
  • The use of these services has also introduced new rules that govern the way things are done. Drivers and customers are able to rate one another, for example, which benefits both.
  • A drawback, however, is that flooding the market with new service providers has created a level of competition that has reduced market share for traditional taxi services and lowered the overall profits of drivers.

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