Uber Shows World How To Fail

Mere days after the world stood in awe of the 5-year old startup hailing from San Fransisco for being valued at $41.2bn by its investors, Uber managed not only to shoot itself in its feet, it also exposed one of the many short comings of its business model. In what the company calls a model built on capitalism, the world called an absolute tragedy this Monday and showed no restraint in its mocking condemnation. It seems I was right to have my skeptical hat on after all.

One of Uber's many pricing features includes an adjustable fare rate that is allegedly priced on supply and demand; namely the supply of Uber drivers in a given area or region at given span of time, and also the demand for Uber rides in that specific area at the corresponding time frame. Great, a market-based model that adjusts fare rates based on equilibrium, fair enough. Well, it seemed like it was all smiles until this past Monday when the awful act of terrorism sent shortwaves across Sydney, Australia.

We all knew what transpired on the afternoon of Monday 15 December 2014 when an Iran-born Muslim radical and a self-declared cleric walked into an uptown city cafe with concealed firearms and locked up the place, holding more than 20 innocent civilians as hostage as live collateral. The dramatic siege eventually ended in the wee hours of Tuesday but left 3 dead, including the terrorist himself. Australia might still be reeling from those shocking events while reassessing its laws and policies on granting asylum, but on the corporate side Uber will have alot to reflect on; patching up the damage to its public image stemming from its PR snafu will take time and effort.

So what exactly did Uber screw up? Well, the following snapshot should paint a thousand words in the aforementioned context.

 Moments after the hostage crisis started, Uber Sydney tweeted that fares (both minimum and per minute) were increased to lure more Uber drivers to the affect area. A short 40 minutes later, the company does a 180-degree u-turn and round trips on its previous announcement, declaring rides from the affected were free for customers (meaning Uber was sponsoring its users by footing their fares passengers would otherwise have incurred) . Damage on the company's image was however, already done

Moments after the hostage crisis started, Uber Sydney tweeted that fares (both minimum and per minute) were increased to lure more Uber drivers to the affect area. A short 40 minutes later, the company does a 180-degree u-turn and round trips on its previous announcement, declaring rides from the affected were free for customers (meaning Uber was sponsoring its users by footing their fares passengers would otherwise have incurred) . Damage on the company's image was however, already done

 Users reported that Uber had charged a minimum fare of between $50 to $100. Users could either accept the much higher charges or choose to be notified when rates had returned to normal

Users reported that Uber had charged a minimum fare of between $50 to $100. Users could either accept the much higher charges or choose to be notified when rates had returned to normal

Online car service Uber on Monday offered free rides from Sydney’s central business district following a public backlash over an initial surge in prices amid a hostage drama in a city cafe.

Fares on the U.S.-based company’s booking app initially rose to a minimum fee of A$100 ($82) for pickups near the siege, more than four times the fare before the drama unfolded.

The price hike was a result of the company’s controversial automatic surge pricing.

An armed assailant was holding an unknown number of hostages inside a central Sydney cafe on Monday, police said, with local television showing some being forced to hold up a black flag with white Arabic writing in the window.

Sydney’s public transport system was under pressure because of the siege as several businesses in the city, including major banks, evacuated offices and sent employees home.

When first challenged about the increase, Uber tweeted from its official account: “We are all concerned with events in CBD. Fares have increased to encourage more drivers to come online and pick up passengers in the area”.

An hour later, after a flurry of critical tweets, Uber said trips from the central business district would be free.

”Uber Sydney will be providing free rides out of the CBD to help Sydneysiders get home safely,” Uber said in an emailed statement. “We are in the process of refunding rides.”

Uber has grown rapidly around the world in recent months, but it has been dogged by controversy surrounding its aggressive approach to local governments and traditional taxi services.

It is banned in the Netherlands and in the Indian capital of New Delhi after a female passenger earlier this month accused one of its drivers of rape.
— Reuters

For the correct intents and purposes, Uber may have indeed meant well by raising fares during the immediacy of the situation; because it wasn't a qualitative event that triggered the pricing surge but a quantitative one which had tripped a few switches embedded inside Uber's pricing mechanism. Capitalism is mostly a good thing in substance, but not always in form as grotesquely exemplified herein.

Uber's pricing structure may have been automated but were its tweets also sent out by robots? One has his deep reservations. What the world was essentially viewing Uber when it sent out those tweets was in polar opposite to what the company actually wanted to convey: "Uber is an opportunist that wants to profit handsomely in crises as emotional as this", as opposed to say, "Uber wants to help evacuate the area by pumping in more drivers through a natural incentive."

In short, it was terrible handling of a situation mostly through a PR mess up, probably by an intern behind its Twitter desk or, by a bloke smoking too much weed after a heavy bacon-laden breakfast. If its price surge mechanism was previously already controversial, this debacle makes it even more so. 40 minutes was also way too long for a resolution of a very obvious mistake. 10 minutes would have been acceptable, but 40 minutes is atrocious for a technologically savvy firm.

I'm guessing the tinkerberries at Uber are in the process of making some changes to their pricing framework, and ensured that the person that tweeted without thinking was fired. So one wonders if a $40bn firm would actually make such ludicrous blunders? We'll see.