Uber has so far charged users based on the distance they are travelling, the travel time, and the time of the day (i.e. surge pricing for peak hours). However, in a bid to make its business more profitable — Uber lost $2.8 billion last year alone, the company will now start charging customers more if they travel are travelling to routes with higher demands.
The company is calling this “route-based pricing” and it is charging customers higher than usual by predicting what they are willing to pay. The company is achieving this by using AI and machine learning techniques. So, for example, if a rider travels from a wealthy part of the city to a poorer one, they will be charged more than a rider who goes from a poorer part of the city to an expensive one.
“Google search is very simple to do; it’s very complex what’s happening behind the scenes,” Graf said. “The same thing here. Taking a trip is easy. To make this all work in a whole market, and sustainable, is really, really hard.”
Uber will be showing the fare to its riders before they take the cab. Not all the benefit of the increased fare will be passed on to drivers who have become increasingly frustrated off late with their pay and how much riders pay to Uber. So, the company will be showing the drivers how much riders pay upfront but it will not be breaking down the fare to show their take-home pay after deducting its own commission.
The company hopes that the difference between what riders pay and the drivers’ pay will eventually help make itself a sustainable and viable business.
For now, Uber is only bringing its route-based pricing to 14 cities in the US where the company also offers its carpooling services. It will be sending its drivers an updated service agreement to reflect the new route-based pricing as well.[Via Bloomberg]