The pandemic almost killed UberPool, one of Uber's cheapest ride services, and it will never be the same
- Company is debating the future of its shared ride service after suspending it when Covid-19 hit
- When it returns, UberPool will be almost unrecognizable, with no big discounts and limited routes
- Uber was once burning almost $1 billion a year on UberPool, while CEO targets profitability now
The fate of Uber's popular shared ride service, UberPool, is in the balance and even after the pandemic subsides the product will be a shadow of its former self, according to people familiar with the matter.
The offering, which put different riders heading to similar destinations in the same vehicle, was a foundational part of the sharing economy. It also represented at least a tenth of all trips globally-sometimes far more. But hundreds of millions of dollars in annual losses and over a year of social distancing have left UberPool's future in doubt, the people said. They asked not to be identified discussing private deliberations.
Uber suspended the shared ride option last year for health reasons and the team working on it was whittled down to a skeleton crew. Now, with vaccinations on the rise, the company is weighing how to bring it back. The new iteration will be almost unrecognizable. Steep discounts that once topped 50% versus a regular Uber X ride are gone. Instead, discounts of 20% or less are likely, according to one of the people. The company also may limit the routes where UberPools run, or make it available only at certain times of the day, the person added. Uber declined to comment. In March, the company restarted UberPool in some cities in Australia.
The humbling of UberPool reflects CEO Dara Khosrowshahi's focus on profitability. He and other Uber executives have told investors the company will make money, based on some accounting measures, later this year. To hit that goal, it cannot operate UberPool at a loss as it once did. Between subsidies paid out to drivers and riders, the company was at times burning close to a billion dollars a year on UberPool, according to two people familiar with the figure. In SF alone, the company was once losing $1 million a week on the product, one of these people said.
Still, a less ambitious UberPool also risks limiting the number of people willing to take an Uber at all. And while Khosrowshahi's leadership has prioritized profitability, if the company can't grow its ride-hailing beyond pre-pandemic levels, investors will grumble.
Early on in the pandemic, Uber teams that worked on shared rides strategy pitched Khosrowshahi new ideas including operating a shuttle service or running a traditional casual carpool service. The CEO was supportive, but the ideas were tabled as the company focused on other areas of the business affected by the health crisis, said a person familiar with the matter.
Current and former employees who helped build UberPool are already lamenting its diminished role in the company's future. UberPool's biggest acolytes touted it internally as a way of reducing traffic, creating a new alternative to public transportation-maybe even eliminating the need to own a car altogether. None of those dreams panned out.
"UberPool was only interesting in a universe where it reduces congestion, not one where it is limited to adding one or two more riders to a Prius," said one former Uber employee.
From its launch in 2014, UberPool has been among the top priorities at the company-at times its number one. Uber's cofounder and former CEO Travis Kalanick would meet weekly with the team to monitor its progress around the country.
Its origins are part of Uber lore under the hard charging former chief. Although current and former employees insist it was always on the roadmap, UberPool was hastily put together when Kalanick heard that Lyft planned its own shared ride product-Lyft Line.
Shared car services were designed to address a number of problems for ride hailing companies. By dramatically lowering the cost of a ride, the customer base grew. That discount was supposed to be offset by creating a more efficient ride where multiple fares were collected by each car at once. And it was sold to cities as a solution to the burgeoning congestion problem, as Ubers and Lyfts clogged up the roadways ferrying around one passenger at a time.
On some of these criteria, UberPool achieved its early goals, namely growth. Ridership went up after the option went live in cities. Both Lyft and Uber used the service as a cudgel against local transportation-and each other. Uber once ran a short term $5 flat fee promotion for all UberPool rides in select cities, a project it internally called "Jared" after Jared Fogle, the Subway spokesman and the sandwich chain's $5 footlong deal. (Uber employees insist they chose the name before Fogle was sent to prison in 2015 for possession and distribution of child pornography and traveling across state lines for sex with a minor).
The promotions drove up the popularity of UberPool. At its peak, around 40% of Uber riders were taking UberPool in San Francisco, according to a current and a former Uber employee.
Uber executives theorized that if enough people used UberPool, the efficiency could eventually make up for the losses. But that was rarely the case. On certain high traffic routes-such as between San Francisco's Marina District and Financial District during commute hours-the company could make money even at a 50% discount. But other routes across the world incurred major losses.
Because drivers get paid based on distance traveled and time spent in the car, a shared ride needed to have multiple people in the car to justify discounts, let alone the steep ones Uber was using to drive growth. And the more time a car would spend going out of its way to pick someone up, or worse, not matching any extra riders at all, the worse the math would get compared to the already shaky economics of a regular trip.
The company tried other ideas to increase efficiency, like Express Pool, which would ask riders to walk a few hundred feet to a designated pickup spot. But that was only a marginal improvement and still averaged worse returns than a regular UberX, according to current and former Uber employees.
UberPool failed to meet its goals in other ways. While one of Uber's big policy aims with UberPool was to reduce traffic in cities, some studies showed it actually made traffic worse. A research paper published by Schaller Consulting in 2018 said that because shared rides increased the use of ride hailing in cities, the overall effect put more cars on the road.
Drivers also despised these shared ride services for a number of reasons. The process of picking up and dropping off multiple passengers during a single trip was complicated and often hurt driver ratings. In a 2018 driver survey conducted by The Rideshare Guy, a media site aimed at gig workers, 65% of drivers said they were dissatisfied with the UberPool experience. That's a particular problem for Uber, which is under pressure to woo more drivers back to the road. Adding this service may hinder that initiative.
Despite these problems, Uber remained aggressive in its incentives while Kalanick was CEO. After his removal in 2017 and replacement with Khosrowshahi, Uber employees say the UberPool strategy began to shift. With the company heading toward an IPO, the company tried to cut its losses. UberPool was a good tool for growing trips, not profits.
That began a steady chipping away at UberPool's discounts. Subsidies had been largely pulled and prices went up. In the months before it was shut down in early 2020, Uber had managed to make UberPool break even as a service, said one current employee.
Meanwhile, Khosrowshahi has been emphasizing Uber's higher margin businesses. In an earnings call with investors last year before the pandemic hit, he highlighted the growth of new products like Uber Comfort, which books newer cars with extra legroom at a higher price.
But many employees within Uber are still committed to making some sort of shared ride service feasible. If UberPool eventually returns as a less-ambitious version of its former self, other products could potentially fill the void.
Throughout the pandemic, Uber has operated a bus service in Cairo and Kiev; employees hope that a version of that could be launched in the US at scale. But, as is the case with most Uber strategies now, the pressure is on its advocates to prove these ideas can make money.
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