Uber starts charging additional commission from some drivers
Uber’s move on commissions comes at a time when the firm and its home-grown rival Ola are trying to check cash burn by reducing driver incentives
Bengaluru: Ride-hailing service Uber Technologies Inc. has started experimenting with the commissions it earns from some drivers, deducting 30% from the ride fare, up from the 25%, two people aware of the development said. The move comes at a time when Uber and its home-grown rival Ola (ANI technologies Pvt. Ltd) are trying to check cash burn by reducing driver incentives, one of their biggest expenses.
Uber, these two persons said on condition of anonymity, has started selectively charging a small set of drivers higher commission for a particular duration, a practice the company follows globally before introducing a blanket hike.
“It (increase in commission) is not uniform. There are several cohorts of drivers, depending on how much time they work, for how long they have been around, etc. The increase will be different for different people,” said one of the two persons cited above.
Mint could not immediately ascertain if Uber is planning a blanket increase in commission across the country.
The company did not respond to an email seeking comments.
Globally, Uber has been tinkering with its driver commissions for a while. Forbes reported in May 2015 that the company had increased commission to 30%, its highest ever, for a small set drivers in San Francisco and San Diego.
In September 2015, Forbes reported that Uber has increased commission from 20% to 25% in New York City, Toronto, Indianapolis, Boston and Worcester.
In India, rival Ola charges drivers a commission of 25%.
Both Ola and Uber started out by wooing drivers with steep incentives, over and above their earnings through rides. Both have cut such payouts—one of their biggest expenses—over the past six months to focus on profitability.
Uber, for instance, has changed its incentive structure from one depending on the number of trips completed by a driver to total amount earned.
For instance, unlike before, when a driver was paid over and above the fare accumulated for completing a certain number of trips, the additional pay now depends on cumulative value of transactions.
Besides reducing driver incentives, Ola and Uber have also increased the fare for long-distance travels, beyond 15km.
According to industry experts, reducing incentives or charging drivers a higher commission is unlikely to result in drivers dropping out, mainly because of a lack of alternative sources of income. Ola and Uber are the two biggest ride-hailing services, pushing legacy businesses such as Meru Cabs and Mega Cabs to the fringes.
“The commission percentage is not going to be a problem. What matters is the net value-add by the mobile taxi company to the driver,” said Sreedhar Prasad, partner, e-commerce and start-ups at KPMG in India.
“Drivers who have been with a company for long will see if commission is proportional to the total revenue they are getting. If the average revenue does not move much every month, those drivers will feel the pinch. If the revenue increases, they will not have too much of a concern with an increase in commission,” he said.
“Besides, it is difficult to earn further from any other player in the market as there are not many options. When you compare the incremental revenue with the increase in commission percentage, so far as the latter is not more than the increase in revenue, the industry should be able to absorb it,” Prasad added.