Uber Boss Says Surging Prices Rescue People From the Snow

As the snow came down in New York City this past weekend, the price of a ride went up.

At least if you took Uber -- the mobile app that lets customers instantly hail a ride in some of the world's biggest cities. The company uses "surge pricing," raising fares during times of peak demand or short supply, in an effort to lure more drivers onto the roads. Over the weekend, that meant rates that tripled during the snowstorm -- just when New Yorkers felt most in need of a quick ride. That led to an outpouring of bitter complaints of price-gouging on Twitter, but the company's outspoken co-founder and CEO Travis Kalanick remains unbowed.

"Surge pricing only kicks in in order to maximize the number of trips that happen and therefore reduce the number of people that are stranded," he tells WIRED.

Kalanick describes the goal of Uber as relentless reliability: to manage the marketplace math so that supply and demand match as perfectly as possible in the face of ever-shifting, highly unpredictable circumstances. And if that means charging $175 for an SUV ride in the snow -- seven times the normal market rate -- that's not greed. He says that's just Uber working like it's supposed to.

"We are not setting the price. The market is setting the price," he says. "We have algorithms to determine what that market is."

In that market, Kalanick compares the pricey SUV -- Uber's most expensive option no matter the weather -- to a Louis Vuitton handbag: It's a luxury good. And no one calls it gouging, he says, when the price of that handbag goes up. More importantly, he says, higher prices ensure the company can live up to what he says is Uber's core value: reliability. The idea is that, if you want a ride and can pay, you'll get one.

"We did more trips because of our approach, not fewer," Kalanick says. "We gave people more options to get around, and that is the whole frickin' goal."

To understand the economics of surge pricing from Uber's point of view, think of drivers as supply and riders as demand. Especially in bad weather, demand goes up: Would-be passengers don't want to be out in the snow and rain. Meanwhile, supply goes down: Drivers don't want to be out in the snow and rain, either.

In that scenario, higher prices are meant to accomplish two things. First, by offering drivers more money, it gives them more incentive to get out on the streets -- at least in theory -- thereby increasing supply. Second, higher fares price out some riders, and demand goes down. Calibrating supply, demand, and price to get the most people the most rides for the least money is the math problem that Kalanick says Uber is always trying to solve.

That explanation doesn't satisfy everyone. Much of the griping over the weekend -- and at so many other times in the past -- appears to come from regular Uber users who are surprised and angered when prices go up. "My worry about a lot of these inventions that Silicon Valley comes up with is that they're geared toward the rich," says Vivek Wadhwa, an academic and columnist who writes frequently about the tech industry and inequality. Wadhwa took to Twitter recently to complain when he found that an Uber ride from San Francisco International Airport to his home in Menlo Park would have cost nearly three times the usual rate.

"I was just outraged," he says. "It was just raining. It was just drizzling outside." He says the regular cab he took instead cost about $90, including a $10 tip.

Alienation of customers through surge pricing and the bad press it generates seems like one of the more difficult costs for Uber to factor into its strategy. But Kalanick says there's another factor that's even harder to measure. "I call it dark energy," he says. "If you are unreliable, customers just disappear."

The gamble Uber is taking with surge pricing seems to boil down to a choice between ticking off customers because prices go up or ticking off customers because rides don't come. Uber is betting that cars not showing up is worse. If Uber is doing its math right, surge pricing might not make everyone happy all of the time. But according to Kalanick, it keeps cars full.

"There's a harsh reality to situations where demand outstrips supply," he says. "As much as I'd love to give everybody a really cheap option, it's just simply not possible in certain sorts of extreme events. ... I guarantee that our strategy on surge pricing is the optimal way to get as many people home as possible."

In the iconography of class tensions between the tech industry and everyone else, Uber has become a symbol almost as fraught as the Google Bus. It's often portrayed as the preferred ride of the haves, out of reach of the have-nots. Surge pricing is Exhibit A.

But the way Kalanick describes his business strategy is ultimately less Louis Vuitton than Jeff Bezos. The Amazon CEO, an Uber investor, has famously shunned profits in favor of growth. Amazon's ever-expanding customer base generates cash that Amazon uses to expand the business further.

"I have a very similar philosophy -- like, very similar," Kalanick says. "Our job is to make as many rides happen as possible. That is all we're about."

Surge pricing may seem like the opposite of Amazon's aggressively low prices. But the same reliability to which Uber aspires is similarly the linchpin to Amazon's success. You get what you order when Amazon says you'll get it, if not earlier.

If Uber can truly make itself the most reliable way to get around, its popularity may eventually end up forcing prices down overall. Even as a $175 SUV gets all the attention, in several cities Uber is aggressively pushing its Uber X service, where drivers in their own private vehicles offer rides at rates competitive to regular taxis. In San Francisco, Kalanick says, Uber X drivers make more money than higher-priced Uber limo drivers. The reason, he says, is that more rides trump higher fares.

"What you're going to start seeing from us is you're going to start seeing surging down," he says, referring to the appearance of dynamically discounted rates when demand is down or supply is too high. In other words, he believes Uber will end up making more money at lower prices. "That is just fundamental."