Uber: Advantages and Disadvantages

Uber: An Overview

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, or in towns without roving taxis, the person would phone a local car service and request a pickup.

Now, there’s an app for that.

E-hail services like Uber allow you 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 rides 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.

Bright-yellow taxicabs once dominated the streets of Manhattan. By July 2023, there were 80,000 ride-share drivers on the streets vs. roughly 13,000 yellow cabs. Those vehicles were summoned by apps offered not only by Uber and Lyft but by others as well, including Arro, Via, and Gett.

Clearly, 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. Let’s look at them.

Key Takeaways

• Ride-sharing services like Uber have disrupted the taxi and limo industry,
• Uber has become a prime example of the gig economy at work.
• Uber’s advantages include door-to-door convenience, safety, and reliable quality.
• Uber’s disadvantages include its surge pricing and the negative effects of replacing steady jobs with gig work.

Advantages of Uber

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

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.

That said, Uber is usually cheaper for longer trips where you’re moving at a quicker speed, while taxis are likely cheaper in congested cities like New York. That’s because taxis charge per mile when moving, but per minute when they’re idling. Whereas Uber charges per mile and minute, regardless of whether the car is moving or idling, with a few exceptions.

Keep in mind that the surge pricing model for both Uber and Lyft can mean much higher prices at busy times of the day.

But if you are heading to an airport, Uber is almost always a less expensive choice than a cab, especially for airports that are located farther outside a city.

The bottom line: Uber can be less expensive than a taxi or car service, but not consistently. One point in its favor, though, is that Uber tells you exactly what the prices will be for the options available at that time before you confirm the trip.

Note

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.

Safety and Flexibility 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.

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.  

Disadvantages of Uber

Controversial Labor Practices for Drivers

Uber has become a prime example of the gig economy at work. Its workers are generally not guaranteed a minimum wage, they have to supply and maintain their own vehicles, and have few if any benefits. Some Uber drivers say they struggle to earn even a minimum wage once Uber takes its cut. But that has begun to change in cities and states where Uber operates.

In 2022, Washington passed the first statewide legislation that mandated minimum rideshare driver pay and benefits that include unemployment insurance and paid family and medical leave. And in November 2023, New York State Attorney General Letitia James announced settlements with Lyft and Uber for $328 million in back pay for drivers as well as new benefits, including sick pay, a minimum wage of $26 per hour, earnings statements, and more.

In 2019, California legislators passed California Assembly Bill 5 (AB5), a law classifying ride-sharing drivers as employees, not independent contractors, but the state’s voters later reversed that by voting in Uber-sponsored Proposition 22 in November 2020. On Aug. 20, 2021, Alameda County Superior Court Judge Frank Roesch ruled that two sections of Proposition 22 were unconstitutional and that the measure as a whole was unenforceable. Uber and Lyft have appealed that ruling and won in state appeals court in 2023.

Important

On May 21, 2024, the California Supreme Court will hear oral arguments on Prop 22, which could end the classification of gig workers as independent contractors and change how Uber does business in the state.

Legislative and ballot proposals are being prepared in Chicago, Colorado, Massachusetts, and Minnesota, as well.

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.

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 each other, and with traditional taxi and car services for both customers and drivers. 

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. 

This has led to a precipitous drop in earnings for taxi drivers, too. Prices for New York City taxi medallions, essentially a metal permit to drive a cab, plummeted from about $1.32 million in 2014 to its low point at $79,106 in May 2021, leaving drivers scrounging for rides and drowning in debt.

$137,330

The average New York City taxi medallion value as of May 2022.

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

What Is Bigger, Uber or Lyft?

In terms of market share, Uber with 74% of the ride-hailing market share as of 2024, is considerably bigger than Lyft. It’s also a bigger company in terms of market capitalization: As of May 2024, Lyft’s market cap stood at about $6.5 billion, compared with Uber’s at over $135 billion.

How Many Ober Drivers Are There?

As of 2024, 5.4 million drivers are working with Uber worldwide. Of that number, 1.5 million drivers are working in the U.S.

How Much Do Uber Drivers Make?

As of 2023, the average salary of Uber drivers in the United States is $19.10 per hour, although this depends on the location and the time the service is provided. Uber drivers get 75% on each fare and the remaining 25% is paid to Uber for its software and resources.

The Bottom Line

Operating in 10,500 cities worldwide and 70 countries, and with 131 million monthly active users as of 2024, Uber is one of the most popular rideshare platforms in the world.

Uber offers riders the convenience of an easy-to-use app, safety, and reliable quality. For drivers, it provides flexibility and a range of perks, like immediate payouts, the right to keep 100% of tips, and simple driver requirements.

However, the stiff competition in the sector, the negative effects of replacing steady jobs with gig work, and the unpredictable prices, make for some challenges that Uber is facing as it grows.

Read the original article on Investopedia.