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The Shifting Ride-Share Marketplace: Fare Game (cont.)

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None of the experts whom we interviewed believes that Uber is in any danger of disappearing in the next 3 years. After all, the company is valued at $70 billion, and it says it has $7.2 billion in cash on hand. However, every expert whom we consulted says Lyft and Uber have to rethink their business model. The companies keep their prices low to attract riders, but the companies are hemorrhaging money and covering their losses with investor capital. None of the experts knows how long that such a practice is sustainable.

“The way that the ride-sharing business exists today, the companies will never turn a profit, just due to how little they’re charging riders,” Campbell says.

In other words, you should expect  their prices to increase in the next 2 years.

FIGURING THE FARE. In March 2017, Lyft and Uber each increased its booking fee by 20–35 cents, depending on the city. (The booking fee is a standard fee that’s charged on each ride and covers operational costs.) That means that every Lyft and Uber U.S. fare now includes a booking fee of $1.50–$2.50, a starting base fare (typically about $2) and a rate for the time (typically 20 cents per minute) and the distance (typically $0.90–$1.10 per mile) that a ride lasts.

Lyft and Uber typically collect about 35 percent to 40 percent of each fare (the booking fee plus a 25 percent commission). In other words, money that’s collected from the booking-fee increase goes to the companies rather than to the drivers. Lyft and Uber say the increase reflects their cost of doing business in 2017, and they say they have no plans to implement further rate increases. However, every expert with whom we spoke says the two companies will have to increase their rates by at least 20 percent in the next year for them to become profitable.

The increases might come in the form of fees that are charged in addition to fare increases. In 2016, Lyft and Uber started to charge consumers if they make drivers wait for more than 2 minutes at their pickup spot. In Orlando, Florida, the wait fee is 11 cents per minute; in New York City, it’s 35 cents per minute. Lyft and Uber also charge a cancellation fee of $5–$10 if you make the driver wait for more than 5 minutes or if you cancel your ride more than 5 minutes after you confirm the pickup.

In 2017, Uber started to test personalized pricing, which uses an algorithm to charge higher prices to customers whom Uber believes have the means to pay a larger fare. For example, the algorithm might decide that a rider who travels to a nice restaurant from a wealthy neighborhood might be willing to pay more than would a rider who rides the same distance within poor neighborhoods. Critics of Uber’s personalized pricing say it’s price discrimination—charging customers a different amount of money for the same service. Uber says personalized pricing is like dynamic pricing, or setting a price that’s based on a customer’s willingness to pay it. Lyft hasn’t announced plans to test personalized pricing.

Lyft and Uber also are testing subscription services, in which you’d pay a monthly fee for a certain number of rides, but neither company will say whether such a service would go into effect or how much it would cost.

“I would be shocked if Uber and Lyft didn’t introduce a subscription/loyalty program at some point,” Campbell says.

SAFER THAN TAXIS? Considerable debate exists in the media about whether the use of Lyft, Uber or another ride-sharing service is as safe as is the use of a licensed taxi. Unfortunately, we found no clear answer to that question. Statistics don’t track the percentage of incidents or accidents per ride that occur in taxis and ride-sharing services. We didn’t find any independent experts who studied whether incidents or accidents are more likely to happen in ride-sharing services or in taxis. In fact, we found that all of the criticism that’s directed at ride-sharing services is spearheaded by “Who’s Driving You?” which is a public-safety campaign by Taxicab, Limousine & Paratransit Association.

We interviewed 12 Lyft and Uber customers, who tell us that they used the ride-sharing services in multiple cities, and only one rider says he had an uncomfortable experience. He says he got into a car and found that it was filthy and being driven by a strange man who wore pajamas. The rider got to his destination safely, but he gave the driver a low rating on the ride-sharing service’s app. We’ve seen a lot of reports in the media about violent incidents that happened during a Lyft or Uber ride, but no one can show that ride-sharing services are more dangerous than are taxis.

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