In the constant war for growth, and they constantly try out new concepts, even when borrowed from other companies and competitors. The latest drive to reach the 2019 IPO with bigger impact for greater success is the introduction of a monthly subscription package deal.
The Amazon Prime style deal is called Ride Pass and is currently available in Los Angeles, Austin, Orlando, Denver, and Miami.
The Ride Pass deal costs $14.99 a month in every city except LA, where it is more expensive, and costs $24.99 a month.
With this deal, you get to lock in flat rates on all the UberX and UberPool trips within the month’s subscription. According to the data sets the rates are around 15% cheaper than standard rates and are based on the customer’s historical data.
The two bonuses are that the subscription rate will not charge more for weather and traffic-related delays, or include surge pricing, and there is no ride limit.
Track and Auto-renew
Subscribers can track their rides and view the savings per ride, and they don’t need to worry about renewal, its automatic. You can also cancel the subscription at any time, however, if you do that, note that you cannot get a refund. I suggest that you cancel the subscription a day before renewal.
Uber Product manager Dan Billen stated that “We’re really keen to make sure this is priced to the point where people can buy the pass, not have to think too much about it. The vision for Ride Pass is it makes Uber a budgeted line-item for riders.”
While Uber is trying to become profitable, it constantly surprises shareholders and potential new shareholders with their incapacity to introduce profitable business models. In this case, drivers get full remuneration for every ride based on standard ride incomes and not the discounted subscription rate. As such, drivers will cost Uber a load of cash, again.
The Uber Paradox
The Uber concept is based on all the free cash they have, and the statement that easily come easy goes applies for Uber across the board. Has this company not learned how to become profitable? Is using the easily come investments, and continuing to believe in the fallacy that a larger customer base will lead eventually to a stronger market share that can be turned into profit?
The Uber Subscription Past, Present, and Future
This is not the first time that Uber has tested a subscription-based service. It once had the “Uber Plus” plan that let riders in six cities pay for 20 to 40 trips with a standard flat fee of $20. Obviously, it worked, but it cost Uber a shit load of cash. On the customer improvement side, it provided growth on the road which is what Uber was seeking in its clash with Lyft and Taxi services across the USA.
Lyft was the first company to try out a full subscription service, however, unlike Uber, Lyft is more cash flow conscious, and their service costs $299 a month. This gives drivers access to 30 rides costing up to $15, which is much more profit conscious that the latest Uber bid for economic uncertainty.
Bilen stated that Lyfts price is just way too high, and stated that “The price of $15 or $25, depending on the city, is way more approachable.”
Approachability vs. Profitability
It seems that Uber constantly surprises us with their bad economics. Growth at the cost of profit is the worst possible business concept around and has led much company to chapter 11. Even with all its size, Uber is not impervious, and while the current debt is only to private investors, the IPO will change that scene around, and make Uber vulnerable to market sentiment.
While Lyft created an economically sound subscription service that was based on customer comfort, aimed at customers that use Lyft regularly and where the price reflects a discount in comparison to their overall monthly usage. Uber is taking the psychological big data analytic route, and basing its subscription model on greed. It is greedy for more market share, and hoping that the price will feed the hungry client that wants a “free ride.”
Bilen states in regard to the Lyft subscription price that “People aren’t ready to make that commitment yet. We see this as a place to start. And if they get there in the future, great, but that’s a different strategy than we’re taking.”
Statistics of Psychology
For clients the $14 or $24 per month subscription price is great, it will bring in millions of users, who wouldn’t want to drive around in an Uber car for virtually nothing? Obviously, the plan will work, and they will attract a large crowd. In fact, I expect that Uber will regain its past market dominance and go back to 80% based on this. However, for how long will Uber’s pockets line the driver’s pockets? Also, how will Uber explain the incredible losses even at the growth of the client base?
What Uber is utilizing is what is called market turn around rates. Let me explain:
When you have ten clients, and they don’t like your subscription changes (from cheap to expensive), all ten will leave. When you have 20 million clients that don’t like your pricing changes, maybe 8 million will leave, but you will still have 12 million using you grudgingly. The market psychology is that large numbers do not decapitate overnight, but only change gradually. This is the fundamental core behind the new Uber pricing model, and they will increase the subscription rate over time for each individual based on the usage.
The more frequent Uber users will accept the rise in price since they will constantly compare it to the alternative in Lyft or against personal driving and Taxi’s. As such, the gamble that Uber is taking is that they will weed out the freeloaders that don’t use the service a lot and retain the core of multi-use customers that will accept a gradual and incremental rise in subscription prices based on their monthly ride usage.
The Bottom Line
Big data management is a major analytical tool for decision making, and as such, Uber is using big data analytics to prepare for a major surge in income, with minimal damage, before the IPO. They intend to bloat their client list and then weed out the freeloaders by raising the subscription amount and retain a much larger and profitable subscription rate client base.
Genius? Possibly, after all, Khosrowshahi is not Kalanick, even if he is now using a Kalanick approach to the market.