Nobody wants to pay more, whether it’s for cabs, flight tickets, hotel rooms or any product in a store. That’s why discounts and sales are such a hit all over the world. It’s partly for the same reason that app-based cab aggregator services like Uber and Ola are popular--they allow us to travel in comfort at a price which is usually lower than what we’ve been paying to ride the regular taxis, and in many cases even lower than autorickshaws which refuse to start their fare meters.
Uber and Ola fares average at around Rs 13 to 15 a km, but could be as low under discounted fare as Rs 7 a km or as high as Rs 35 a km under surge price. Meru, also an app-based service with a different ownership model, charges Rs 23 a km but without any surge price mechanism thrown in.
The argument to force cab aggregators to stop using ‘’surge pricing’’, which kicks into action once demand soars, is faulty. Surge pricing typically means that if the usual fare is x, it could rise to 1.5x, 2x, 3x, 4x and so on. The rider has the option to take it or leave it. Surge price is a killer for a traveller in a hurry, who will take the service at a higher price if there’s no alternative. But the point is traveller gets to go, without waiting. If there’s time to wait, one will of course happily wait for the surge price to come down and travel at normal fare a little later.
Read more from our special coverage on "UBER"
So, it’s a matter of how desperately a customer wants to hail a cab at a given time. This is nothing different from buying a flight ticket or booking a hotel room in peak holiday season.
Also Read
If Delhi government decides to ban surge pricing for good, even when the odd-even drill is over, it will be the second state after Karnataka to impose a restriction. Karnataka has put a cap on prices at Rs 18.5 a km, which means surge can't go beyond that limit. Delhi is talking of doing away with surge pricing altogether, though there are talks of a policy to fix price bands for cabs running in the city.
In fact, American cab major Uber has been under attack for surge pricing among other regulatory issues in many other countries too. But governments should stay away from tinkering with business models of companies, and not kill ideas which are valued. Surge pricing is a case in point. It’s an app, which enables a cab driver to detect real time demand and reach those points even during peak time. For the driver, it means a higher fare and therefore a bigger earning. For the cab aggregator too it’s a business opportunity to earn more in a revenue-sharing model.
Critics of surge pricing must understand it’s just a way of doing business, even if it may mean "over-charging" at certain times in certain locations, and that it is not being forced on anybody. Once surge pricing mechanism is switched off, as has happened now in Delhi after orders from the Aam Aadmi government, drivers of these app-based cabs go blind on traffic demand and are therefore showing ‘’no cab available’’ for the longest duration.
For companies to do away with surge pricing, they must come up with alternative apps and that may mean changing their business models and the very idea that they had set out with while starting up.
Uber is valued at over $62 billion and all it has is its app, part of which is the mechanism to determine surge pricing, based on demand. Bhavish Aggarwal-led Ola, which is funded by marquee international investors including Softbank, too follows the same model and will have to change the way of doing business if surge pricing were to be banned.
It’s ironical that companies like Uber and Ola are being told to change the way they are doing their business when Prime Minister Narendra Modi has been celebrating startups like never before. In January, while unveiling the startup policy, Modi had shared the dias with founders of Uber and Ola, as well as with top executives of investment firms such as Softbank.
The NDA government at the Centre has also promised ease of doing business to startups. Banning of surge price may be a test case for India and the PM on the future of startups in the country.
For now, here’s a tweet by Uber CEO and co-founder Travis Kalanick on December 24, 2013, referring to surge price in airlines, in this case Delta in the US. "12/24 7am SFO to LAX 1-way/coach delta $660, same flight on 1/7 $58 – 11.3x Surge Pricing…." He was reacting to criticism of Uber’s surge-pricing (upto 8 times) during a New York thunderstorm at that point.
12/24 7am SFO to LAX 1-way/coach delta $660, same flight on 1/7 $58 - 11.3x Surge Pricing - calling FBI/FTC/BBB/Valleywag to vent grievances
— travis kalanick (@travisk) December 24, 2013
