Uber New Year’s Eve: Get ready for surge pricing.

New Year’s Eve Is the Best and the Worst Day of the Year for Uber

New Year’s Eve Is the Best and the Worst Day of the Year for Uber

Moneybox
A blog about business and economics.
Dec. 31 2014 1:27 PM

New Year’s Eve Is the Best and the Worst Day of the Year for Uber

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Get ready for surge pricing.

Photo by Spencer Platt/Getty Images

This time last year, Uber CEO Travis Kalanick was doing triage on Twitter. New Year’s Eve had activated Uber’s demand-driven surge pricing and riders were incensed by the high fares. As angry customers flooded social media—“uber pricing policies are outrageous!” “my friends, family & I are never using Uber again”—Kalanick attempted to stem the tide. He suggested users could test Uber’s price-estimate feature. He reminded them that the extreme surges would die down as demand fell and that, if they waited, they might be able to snag a normally priced ride.

Nothing worked. Come New Year’s Day, it got worse. The New York Daily News reported that Uber fares had climbed to nearly eight times their typical rates. Business Insider published the receipt of a woman who claimed a 25-minute ride had cost her $351. Customers were irate. On Twitter, Kalanick’s frustration became increasingly apparent, and his exchanges increasingly ugly.

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Even Seth Rogen got involved. “it’s a great way to rip off drunk people,” he tweeted. “Kind of a brilliant business model.”

Tonight, as New Year’s celebrations roll around again, Uber is once more expecting its busiest night ever, with more than 2 million rides in 24 hours. The night will undoubtedly be a boon to Uber’s bottom line. In 2013, the company generated $10.7 million in gross revenue from an estimated 200,000 rides in 60 cities, according to internal documents obtained by Business Insider. This year, Uber has extended its reach to 266 cities and 53 countries. It’s projecting 10 times more rides than it delivered in 2013. Since the surges could be different this year than in 2013, you can’t really extrapolate those numbers to project how much revenue Uber is likely to make tonight. But clearly, it will be a lot.

So in terms of the financials, it should be pretty clear why New Year’s Eve is the best night of the year for Uber. But looking at Kalanick’s Twitter grief from last year, it should also be evident why it’s the worst. No matter how many times you explain that surge pricing does not take unfair advantage of drunk people, they are still bound to get upset by exorbitant fares. Spiking fares also incentivize drivers to forgo their own New Year’s celebrations to pick up passengers and provide safe transport. I’ll hazard a guess that people wouldn’t be too happy if Uber rides were as hard to come by as standard taxicabs on New Year’s Eve. And Uber, to its credit, is trying harder than ever this year to warn customers about high surges and advise them on the times when it will likeliest be the most expensive to hail a car.

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Screenshot from Uber

Here’s the kicker though: In terms of keeping people happy on New Year’s Eve, Uber really can’t win. Let’s say for the sake of argument that everyone decides to take Uber’s advice and call rides during the demand troughs shown on the graph. Well, suddenly those periods are no longer low-demand—they're high-demand, and fares will adjust accordingly. The flip side of this is that, as I noted above, the main way Uber gets so many drivers to come out on New Year’s Eve is with the promise of soaring demand and high fares. But the more drivers that actually work tonight, the greater the supply of rides becomes. And if a critical mass of drivers hits the road, well, they could cause surge pricing to fall or even vanish entirely. If that happens, customers are happy because they’re not paying loads of money for a ride, but all of a sudden the drivers—who are banking on a big haul—feel betrayed.

So one way or another, someone is bound to be unhappy with Uber on New Year’s Eve, and Kalanick and his team are in for a long, complaint-filled night. But when it’s over, they’ll probably have tens if not hundreds of millions of dollars to show for it.

Alison Griswold is a Slate staff writer covering business and economics.