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SKEPTOID BLOG:

Myths and Facts About Uber

by Mike Rothschild

May 12, 2015

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Donate I recently had the chance to take my first ride with Uber, the ride-sharing app that's gone from completely unknown to a valuation of over $40 billion in less than six years. While I'd heard quite a bit about the company and its business model, I found that when it came time to decide whether to take a cab or try my hand at Uber, the information I had wasn't enough to make a decision. So I went by the one thing I knew to be true — Uber is a hell of a lot cheaper than a taxi.



But what do you really need to know about the company that promises to change the way we move through our cities? What's myth and what's reality?

It's hard to find definitive facts on Uber for a variety of reasons — not the least of which is Uber's opaqueness about how much their drivers make and its legal status. Also, its pricing and commission structure varies based on what city it's running in. Finally, many of its drivers are unwilling to speak on the record, and many don't speak fluent English. But I put together a list of common myths about Uber, how true they are, and what you should know before you decide to fire up the Uber app and get a ride with one of their drivers.

MYTH: Uber divers make a great living, pulling in an average of $90,000 a year.

FACT: This is a claim that Uber made in May 2014, as a way of stating how its model of crowd-sourced independent contractors working when they wanted to was changing the world. They claimed that the average UberX driver (the independent contractors using their personal cars for ridesharing) in New York made $90,000, and $74,000 in San Francisco — as opposed to licensed cab drivers, who make about a third of that. However, UberX drivers have complained in interviews and on Uber driver forums that they're actually taking home less than minimum wage.

How can this disparity even be possible? It's important to note that Uber's "$90,000" figure is incredibly vague. It includes no supporting documentation or calculations, and is simply stated as gospel fact. It also is a gross figure, not a net figure. It's not take home pay — because out of that $90,000 comes not just Uber's cut, but the costs of driving an UberX, which are considerable. It also doesn't include a number of hours or days worked. If a driver has to work 100 hours a week to take make that amount, it's not exactly something that paints the company in a good light. Uber also has a policy of cutting its rates once its services have been in a city for a while, meaning drivers will suddenly find themselves taking home a lot less than they were before the rate cut.

A number of journalists have taken issue with the figure and attempted to debunk it. At best, it's impossible to know how much an Uber driver actually takes home, and it quite likely varies wildly.

MYTH: Uber makes drivers pay all their own expenses.

FACT: This is absolutely true. Uber keeps its prices down primarily by passing the savings on to the consumer. The way they do that is by having drivers pay for their own cars, gas, maintenance, upkeep and insurance. Since Uber drivers are all 1099 contractors, they also pay their own taxes. If you're driving a cab that blows a tire, the cab company pays for the repairs. If you're driving an Uber that blows a tire, it's on you to fix it.

MYTH: Uber's surge pricing exists only to gouge customers.

FACT: The company has taken a lot of flak for its surge pricing policy, which jacks up the costs on rides at peak times, such as after events or on holidays. In theory, this is because during peak times, demand for rides increases, but the supply of drivers would remain the same or even decrease. When to kick in surge pricing is determined by both a proprietary algorithm and decisions made by human staffers. But sometimes this comes back to bite the company, such as during last year's hostage crisis in Sydney, when Uber surge pricing charged riders four times as much as normal to get out of the immediate area.

Uber contends surge pricing exists to encourage more drivers to take on the hassle of ferrying passengers at high demand times. Drivers tended to clock out just as bars were emptying out. To keep them on service, Uber offered them more money. And it's mostly worked — except when it doesn't. At times like the Sydney crisis, or when prices went up 600% on New Year's Eve in 2012, it looks a heck of a lot like price gouging — which is illegal in most states.

MYTH: Uber has a $1m insurance policy on each driver.

FACT: They do — but it's vital to note that this is a secondary policy. Primary responsibility for insurance lies with the driver. And it only applies when the driver actually has a passenger — not when they're driving to pick one up or circling waiting for the app to ping them. Insurance on ridesharing is a hazy gray area, with many insurance companies cancelling policies on Uber drivers because they violate the terms of the policy, which stipulate the car is to be driven for personal use only. An Uber driver covered by the million dollar secondary policy might be off the hook for the cost of an accident, only to find themselves dropped or even sued by their personal insurance company.

MYTH: Uber is technically illegal, as it provides unlicensed transportation services.

FACT: This is another incredibly hazy area. Like medical marijuana, Uber and other ridesharing services are plying their trade while at the same time quite possibly violating state and federal law. UberX's legality is complex, thorny issue with no easy answer that varies wildly by jurisdiction. (other Uber services, such as their black car limo service, are legal, as drivers are licensed and bonded by the state). Many states and countries have banned Uber, only to see it pop up anyway. South Korea went so far as to indict Uber's founder for running an illegal cab service. As with virtually everything Uber-related, the risk lies with the drivers. A passenger isn't going to be fined or tossed in the can or taking an Uber — but some drivers have been.

MYTH: Drivers make their money on numerous short trips and don't want long trips, as they suck up too much time.

FACT: The opposite is true, actually. Because of Uber's pricing and commissions, it's better for drivers to have one long trip, such as an airport run to or from a distant suburb, than a bunch of short trips, like taking some drunk clubbers around the corner. Uber takes $1 off every ride as a "ride safety fee", then 20% of the rest of the fee. So a $40 airport run yields $1 plus 20% of the remaining $39, while four $10 bar runs yield $4, plus 20% of each remaining $9. This is just some of what Uber drivers refer to as "Uber math" — the complex calculations that show just how much they actually take home, as opposed to how much they gross.

MYTH: Uber drivers are untrustworthy and not background checked.

FACT: Because Uber is a bright, shiny new thing, any crime committed by an Uber driver or while an Uber is being driven tends to make the news. This leads to a misconception that Uber is the Deadwood of transportation — a lawless realm where you take your life into your hands every time you climb into one of their death mobiles. However, this isn't really true.

Uber does background check drivers, mandating they not have DUIs, violent crimes, or sexual offenses on their record within seven years of their application — however these are online checks, not the fingerprint checks that cab companies carry out. It also requires seven years to pass before considering applicants who have gun-related violations or driving offenses. Cab companies only require five years to pass — and cab drivers still commit heinous crimes against passengers on occasion. There's really no data on whether cab rides are safer or less safe than Uber rides, but the moral panic about ridesharing being inherently dangerous is mostly overblown ratings grabbing. You're probably equally safe in either - and should always be careful when getting into the car of a stranger.

MYTH: You don't need to tip your Uber driver — and your driver isn't allowed to accept tips.

FACT: Since Uber is still fairly new, the ingrained customs that we associate with other services, such as tipping, aren't well known. For the record, like taxi rides, Uber charges don't include a tip. Uber makes a big show of claiming "there's no need to tip" and doesn't even offer the option for a cashless tip on their app (competitor website Lyft does offer a tipping option.) Uber drivers CAN accept cash tips, and they're usually quite appreciated.

Whether or not you want to tip is up to you. But knowing what one knows about Uber — that its massive savings essentially comes out of the driver's pocket — might help make up one's mind on tossing a portion of your savings back to the driver.

MYTH: Driver ratings aren't important.

FACT: They're hugely important for the drivers. UberX mandates drivers maintain a 4.7 average rating to continue driving, meaning even a few bad reviews can end a driver's career. You can't hail another Uber until you've rated your driver on the previous one — and your driver likewise will be rating you. A passenger who piles up bad reviews might find themselves ignored when they ping the service. So be good to your driver, and your driver will be good to you.

With all of this information in mind, it's ultimately up to the individual if using ridesharing services is something they want to do, and if the benefits outweigh the drawbacks. For the record, I enjoyed my Uber experience, got to where I was going quickly and safely - and gave the driver a cash tip.

by Mike Rothschild

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