David Zipper is a Resident Fellow at the German Marshall Fund and a Partner in the 1776 Venture Fund, where he oversees investments in smart cities and mobility ventures. Following his tenure as director of NYC Business Solutions in Mayor Michael Bloomberg's administration in New York City he served as director of Business Development and Strategy for two mayors in Washington, D.C.
Many users of Uber rejoiced this week when the company rolled out a Rewards program, offering perks like vehicle upgrades and free trips. Uber’s regular customers will clearly benefit from Uber Rewards, but will cities? Probably not. As currently designed, the program is poised to worsen urban road congestion.
To understand why, it helps to compare Uber Rewards with a typical airline frequent flyer program, which seems to be its model. Much like members of these programs, elite Uber customers are placed into tiers like Platinum and Gold based on how much money they spend on the service. As with a frequent flyer program, the base number of points that an Uber user receives from a trip is set by the amount she spent on her ride.
And just like many airlines, Uber will multiply the dollar-based Rewards if she books travel on a higher class of service. Uber doesn’t offer a first-class ticket, but it does give twice as many Rewards miles for a dollar spent on UberX or XL than it does for one spent on UberPool. Better yet, if the user spends a dollar on Uber Black or Uber SUV, she can triple her points compared with UberPool.
The company is tight-lipped with data for its service modes, but it’s plausible that the lower fares and higher routing complexity of UberPool make it comparatively less profitable, giving executives a reason to push users toward other services.
When asked about Rewards’ structure, an Uber spokesperson said it is designed “so that both the most frequent riders who use low cost options and riders who regularly ride with higher cost products have an opportunity to get rewarded." Fair enough, but that ignores the ways that Rewards could tilt an individual’s decision from one type of service to another.
And therein lies the problem. The structure of Uber Rewards incentivizes a points-conscious customer to ride alone instead of taking UberPool. For city residents worried about congestion, that’s dangerous.
Pooled rides combine passenger trips into a single vehicle, meaning fewer cars are on the road than if each passenger took a ride herself. With its nudge away from UberPool, Rewards is designed to put more cars on the road—and therefore worsen congestion.
Uber doesn’t seem to realize that airline frequent flyer structures can’t be replicated in a ride hail rewards program without creating societal problems. On an airline, every passenger imposes the same cost on society from flying regardless of how much they paid for their ticket. The societal costs of a first-class ticket and an economy ticket are the same.
That’s not the case for Uber, because a solo trip is worse for society than a shared UberPool trip. The company is subtly encouraging its customers to take modes that are more likely to clog urban streets.
An example: As I write this in the District of Columbia, hailing a ride from Dupont Circle to Georgetown University would cost me $5.05 to use UberPool and $10.17 to use UberX. Either way, the trip is 1.7 miles (or very close to it, based on UberPool routing). But because of the design of Rewards, I would actually get four times as many points from selecting UberX than I would on UberPool.
None of this is consistent with the Uber’s stated goal of reducing road congestion. “Congestion is projected to get much worse,” a corporate blog post reads. “The only solution is to reduce the number of cars on the road. UberPool is helping to make that vision a reality.” If company executives really believe that, they should redo the Rewards program so that it reflects their stated values. Otherwise, thanks to the program’s skewed incentives, urban drivers can expect to spend a little more time stuck in traffic.