Following in the footsteps of Netflix NFLX +8%, Disney, Amazon AMZN +3.5% and Instacart, Uber UBER +0.5% announced this week its intent to establish a corporate advertising division and the launch of Uber Journey Ads, which will allow brands to connect with consumers throughout the entire rideshare experience. The new business will join Uber Eats, which has been displaying in-app restaurant ads for two years.
Uber’s press release crowed about the potential to leverage its extensive first-party data across mobility and delivery interactions, presenting the world’s largest companies with a compelling opportunity to reach 122 million active users who make or order almost 2 billion trips per quarter on Uber’s platform.
At this scale, Uber’s new business does show promise in delivering much-needed high-margin revenue by selling targeted ads that exploit unique insights on customer lifetime travel behaviors and trip-specific destinations. Moreover, by controlling its own customer data and user app, Uber can sidestep Apple’s AAPL +2.7% and Google’s GOOG +0.9% growing restrictions on ad-tracking tactics.
But what about consumers? What makes Uber Journey Ads a good deal for them? Uber has always relied on convenience as its most compelling consumer value proposition, namely the ability to be whisked from any point A to B, at any time, with frictionless payment, all with the simple tap of a smartphone. While Uber initially was also cheaper — not just better — than traditional taxi service, over the past five years Uber has sharply raised prices, to the point where consumers now routinely pay premium prices for Uber’s service.
Uber’s rideshare trip growth has slowed from the heady era of price-subsidies, but there are still plenty of customers attracted by Uber’s convenience, and the company’s financial performance is actually better (or less bad, depending on your disposition) than it has ever been. But with in-app ads, Uber now expects rideshare customers to be comfortable with the need to continue paying premium prices, despite now being bombarded with what may be unwanted or possibly creepy ads. Remember, Uber knows who you are and where you’re going.
From a consumer perspective, Uber’s Journey Ads program would be analogous to Netflix announcing that they were introducing ads to everyone’s streaming feed, but keeping subscription prices the same. Uber’s new ad business chief, Mark Grether, claims that the addition of ads would ultimately make rides cheaper for consumers, but declined to say how much.
Really? Cheaper than what? Uber’s consumer pricing algorithms for ridesharing service are completely opaque to consumers. Fares used to be based on published rates per-mile and minute (similar to taxis), adjusted as necessary for supply/demand imbalances, expressed as an explicit “surge” multiple over base fares.
But in 2016, Uber switched to “Upfront Fares,” where the company abolished its rate card entirely, simply quoting passengers a flat fare at the time of a trip request, which passengers are free to accept or reject. In that respect, passengers may know upfront what any given trip will cost, but as to why prices can and do vary considerably from trip-to-trip, Uber isn’t upfront (as in transparent) at all.
Uber almost doubled its average rideshare prices nationwide between 2018 and 2021, and reports of extreme fare levels have increasingly surfaced, for example airport-to-city center Uber fares exceeding the passenger’s air fare.
Do large price swings from trip to trip simply reflect dynamically shifting surge conditions as always, or are different factors at play? Can different riders sometimes be charged different rates for exactly the same trip? If so, why? As passengers, we simply have no way to know what prices to expect when ordering an Uber rideshare service.
As such, Uber’s Journey Ad promise to reduce consumer rideshare fares by an unspecified amount sometime in the unspecified future rings hollow when compared to crystal clear price transparency in the streaming video market. For example, if you want to binge on Bridgerton to your heart’s content without pesky interruptions, Netflix’s standard monthly streaming rate is $15.49. If that price is a bridge too far, and you’re willing to accept ads, the monthly rate drops to $6.99, a 55% cut.
It’s also important to note that Uber’s mobility and delivery businesses are fundamentally different. Customers opening the Uber Eats app may not know exactly what restaurant to order from. That’s what makes ads on food apps (and Amazon.com for that matter) so devilishly effective. Most customers in these cases are definitely going to buy something, but can be influenced by ads in considering their alternative choices.
But for ridesharing, customers know precisely where they are going and why, so ads are far more likely to be viewed as an annoying distraction. That is, if they’re seen at all. It’s fair to assume that most customers don’t sit in their ridesharing vehicle staring at Uber’s app, as opposed to Netflix, where staring at a screen is the whole point of the service. As a result, Uber plans on hitting consumers with ads at all three journey stages — the waiting-for-pickup screen, enroute, and post-trip.
In fact, Uber plans to sell ad “blocks,” where advertisers willing to pay can gain exclusive access on display ads on Uber’s app at every journey stage. Consumers, this isn’t the way it used to be! For some customers of course, the final, and perhaps most concerning aspect of Uber Journey Ads is the potential creepiness of it all. To be sure, Uber has given strong assurances that it will not share or divulge personal information under its targeted ad program.
But regardless of the level of aggregation Uber may use in its algorithmic target market segmentation, there are four reasons for potential concern.
- Advertisers always value (as in more ads at higher CPM rates) more granularity in targeting prospective customers, so there are natural incentives favoring targeting accuracy over consumer privacy
- Location-specific tracking has always been a particularly sensitive privacy issue, which lies at the heart of Uber’s new mobility ad service
- This sensitivity was clearly on display in the widespread moral outrage following revelations in 2014 that Uber employees freely accessed a “God View” program to track individual customer movements. To settle the ensuing embarrassing government investigation, Uber agreed to submit third-party audits of its privacy practices to the Federal Trade Commission for 20 years
- As recently as last month, Uber suffered another serious data breach. A security engineer who corresponded with the person claiming responsibility for the hack reported, “They pretty much have full access to Uber; this is a total compromise, from what it looks like.” Such incidents add to lingering concerns with Uber’s trustworthiness and security in handling sensitive consumer data.
Uber has failed for years to create sufficient value to adequately reward all its stakeholders — consumers, drivers/couriers, restauranteurs, and company shareholders — forcing the company to play one off against another, in what has become a long-running pursuit of profitless growth.
The addition of Uber Journey Ads is a perfectly logical business initiative for a company under increasing pressure to produce attractive investor returns. But make no mistake about it:Uber’s advertising initiative is intended to extract value from consumers for the benefit of Uber’s shareholders and advertisers. Consumers, you’re being taken for a ride!
I am an Executive in Residence and Adjunct Professor at Columbia Business School, teaching courses in business strategy and corporate
Source: Uber Jumps On The Advertising Bandwagon, Leaving Consumers Behind
Critics by Alexis Gebhardt
After a decade during which ultra-low interest rates and abundant market liquidity grew Uber and Lyft. into start-up giants and eventual IPOs, the rideshare model is under a great deal of stress.
Even with consumers bouncing back and ride numbers way up from pandemic lows, stocks of both companies are tanking after their latest earnings, and from wage inflation to unionization and gas prices, the current economy is not one that favors their business models.
In many respects, Uber and Lyft today are much more like big corporations than a reflection of any original definition of a local “rideshare” community, but one thing remains true: consumers do want alternatives to owning a car and traditional public transport options. Nearly 36% of U.S. adults say they have at one point used a ride-share app like Lyft and Uber, according to Pew Research.
If anything, the pressure on the top “rideshare” companies may leave room for additional models to make their case. Getaround is an example. Founded in 2009 and, along with Uber, an original CNBC Disruptor on the inaugural 2013 list, its mission has remained transitioning society away from every licensed driver in the world having a car: simply walk up to cars that are parked all over the street and tap an unlock button on your phone.
The IPO market may not be receptive right now, but its executive team and investors are betting that the concept will continue to grow.
“What’s happening in transportation is a slow moving kind of shift from ownership to access, and that’s building momentum over time,” said Elliot Kroo, CTO and co-founder of Getaround. “More and more people are looking at alternative transportation options, realizing that car ownership is very expensive.”
The pandemic and the related global supply chain issues, as well as robust consumer demand, have led to steep increases in prices of both new and used cars. Kroo said that while more people use car-sharing services like Uber and Lyft, more people are also thinking about getting rid of their cars.
The pandemic and the related global supply chain issues, as well as robust consumer demand, have led to steep increases in prices of both new and used cars. Kroo said that while more people use car-sharing services like Uber and Lyft, more people are also thinking about getting rid of their cars….To be continued…
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