UberPool: Good for Us, Great for Uber!

Back in 2014, ride-hailing companies noticed that many riders were taking the same routes at the same time. There were Ubers and Lyfts going side by side in the same direction. They thought – why not pair these passengers together, free up some drivers for other rides and reduce congestion on roads. 

To solve for this, Lyft Line and UberPool were launched. These services put carpooling back on the rise and got people around more efficiently.

Source: Uber Marketplace

The core of the carpooling algorithm is to pick up more riders in less number of vehicles. Over the years, Uber & Lyft have developed the tech that constantly seeks to optimize routes to find that line-of-best-fit. 

Before: Two UberX Rides

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After: One UberPool Ride

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For consumers, the benefit of carpooling is cost. UberPool rates are anywhere between 20-50% cheaper than regular UberX trips. Among millions of other factors, UberPool rates are also dependent on the chance of matching. 

When you select UberPool and the algorithm couldn’t match you with any other rider, this means you’re now riding an UberX, but paying less than an actual UberX (trust me, it feels good when this happens!). Uber can predict such cases and when there is a lower chance of matching riders – it will charge more. Similarly, between the hours of 7-9 am, when more people are taking UberPool to commute to work – chances of matching riders will increase and rates will drop. 

For drivers, cheaper UberPool meant lower income in comparison to UberX. So to incentivize drivers to accept UberPool rides, Uber paid them a consistent rate based on time and distance. However, this wasn’t sustainable. 

“Uber moved into an ongoing pull model i.e. even when the 1st passenger is matched with the 2nd, drivers could get a request for the 3rd and 4th passenger if the car is nearby the pickup points. […] It would be in the best interest of the marketplace to pack maximum # of riders in one car, keep the wait time to be as low as possible, provide the service with the lowest price points, and keep the drop times to be as quick as possible.” – Ram Alagianambi, Quora

Uber calls this a back-to-back trip. A constant stream of fares and riders turned out to be more profitable for drivers. Now they had zero downtime and were constantly earning – way better than UberX.

Uber figured this product was a great way to generate more revenue for drivers, keep the supply up (number of cars open for pick up), ease congestion on roads (dodge traffic complaints from city) and most importantly open up a new segment of users (for whom UberX was not an affordable option). 

So Uber made it a goal is to achieve back-to-back trips. It’s good for drivers, consumers and the marketplace. But there’s more to it.

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“Imagine this: the driver picks one rider up, then picks up another, drops off the first passenger, picks up a third, drops off the second, and on and on. For as long as they choose, and as long as riders continue to request trips, drivers keep earning, uninterrupted.” – Uber Marketplace

Basically, once an UberPool begins – the driver will be on a back-to-back trip and essentially, will be locked into the system – which is bad for competitors. 

Uber has exponential leverage here. Looking at simple numbers, Uber has over 500 million app downloads whereas Lyft has just over 10 million. 

When a driver – who drives for both Uber and Lyft – starts the day, there is 98.039% probability that their first passenger will have booked an Uber. And if it’s an UberPool, the driver will continue to pick up for Uber until the demand goes to zero. Thus, latching the driver to only drive for Uber.

Assuming that most drivers drive for both Uber & Lyft, their extremely high chances of getting locked into a back-to-back trip, will take a significant number of Lyft cars off the road.

Hence, Uber’s goal of back-to-back trips.

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