Uber, surge pricing, and data at work (at work)

The on-demand black car service Uber took quite a bit of flack over the weekend for implementing what is known as 'surge pricing' during a pretty nasty snowstorm in New York City. If you are not familiar with Uber, (and you should be because it really is an amazing service), the basics are pretty simple. Users use a smartphone app to summon a black car or equivalent that picks them up and then are taken to their desired destination. The entire payment transaction (including leaving the driver a star rating) is executed via the app, for prices (at least in my experience) ranging 15-20% more expensive than 'regular' taxi service.

But during times of extremely high demand for rides and low supply of on the road drivers (like on a Saturday night in a bad storm), Uber implements 'surge pricing', essentially increasing the cost of rides anywhere from 2 to even 6 or 7 times the normal fares in order to balance demand with supply. The ECON 101 logic is pretty simple - the increased prices (which users are warned about in advance of booking a ride) will serve to simultaneously reduce demand while increasing supply, as more drivers will be enticed to get out on the road in order to earn increased fees during the surge pricing period.

In addition to using basic pricing flexibility to manage and try and balance supply and demand, Uber also is attempting to mitigate the one really frustrating piece of the typical customer's experience, (I can attest to this one), which is the simple lack of availability of a car when you need/want one.

But the backlash from last weekend's surge pricing in NYC seemed pretty harsh as people took to Twitter to vent about their frustration with Uber for radically increasing their prices during a time of "crisis" in the city - it seems like there were scads of celebrities that were particularly peeved about having to pay what they felt like were exorbitant prices for transportation around town.

Putting aside the natural lack of sympathy I have for anyone complaining that their on-demand, door-to-door, black car service costs too much (on a Saturday night in the busiest city in America and during a snowstorm), I wanted to highlight this story as one of the very few that we see that showcases how data, technology, and the combination of the two are actually conspiring to benefit the front-line worker - in this case the Uber affiliated black car drivers.

Normal taxi drivers or even limo drivers might see a little extra in their pay rates for working a Saturday night, but certainly could not take advantage of the dramatic increase in demand for their services as the Uber drivers who braved the storm were able to realize.

Through a combination of new technology, absence of the pricing regulations imposed on traditional taxi services, more flexible labor rules, and most importantly, the presence of information of the increased demand, these Uber drivers were able to make better and hopefully, more informed, data-driven decisions about whether, where, and when to provide their services.

Most front-line workers never really get the exercise the kind of labor pricing power that we see in this example. Last Saturday night lots and lots of pretty well-off people wanted black car service on one of the worst weather nights of the year. The kind of night that most folks would rather stay home and stay warm, much less venture out into the cold and wet and storm to work for their normal pay.

Thanks to data and technology at least in this example, the Uber drivers who did venture out into the weather did a little better than most front-line workers.

It looks like they were paid what they deserved. Which is not always easy to say, both for black car drivers and for the celebrities they ferried up and down Manhattan last Saturday night.

ECON 101: Comparative Advantage: Or, why it still can be ok to be worse at everything

I was talking with a friend recently, the kind of person who is just good (and often really darn good), at just about everything. Successful in their career, well-respected in their industry, good-looking, model family life, knows how to cook/fix/find just about anything.... you get the idea.

We probably all have a friend or colleague that fits that description, maybe even going back to childhood perhaps where the memory of our high school nemesis that was just a little better than us at sports and in class and with the ladies (or guys), always just ticked us off to no end.

No matter what the activity or subject or context, this person was just better.  At everything. And it can easily be pretty annoying.David Ricardo - 'He amassed a considerable personal fortune'

Until you recall (or learn for the first time as in the case of the high school me), the Law of Comparative Advantage. Let's do a quick ECON 101 review:

In economics, comparative advantage refers to the ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another. Even if one country is more efficient in the production of all goods (absolute advantage in all goods) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies.

The idea of comparative advantage has been first mentioned in Adam Smith's Book The Wealth of Nations: "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage." But the law of comparative advantages has been formulated by David Ricardo who investigated in detail advantages and alternative or relative opportunity in his 1817 book On the Principles of Political Economy and Taxation in an example involving England and Portugal. In Portugal it is possible to produce both wine and cloth with less labor than it would take to produce the same quantities in England. However the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce.

Therefore while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth. The conclusion drawn is that each country can gain by specializing in the good where it has comparative advantage, and trading that good for the other. 

This Business Insider piece from the weekend spurred me to think about Comparative Advantage (and what can happen when really powerful and attractive companies like Google are powerful enough to essentially ignore the 'law' in many respects), a look at some of the worst aspects for working for such a desirable employer.

Among the chief complaints raised about life at Google was that their hiring standards are so high and that fact, combined with seemingly everyone wanting to work for them, that many, many sort of mundane positions are staffed with over qualified, exceptional, and often wasted talents. 

Here is an example of how that plays out:

There are students from top 10 colleges who are providing tech support for Google's ads products, or manually taking down flagged content from YouTube, or writing basic code to A|B test the color of a button on a site."

Adam Smith's law of Comparative Advantage, if Google cared about such things, would probably tell them that it was relatively inefficient for them to try to be the best at everything, that more or less, they should focus on those elements where their advantage in the market (for talent in this case), was the greatest compared to their competition, and let the wanna-bees fight it out over the rest.

But I don't really care about Google, I care about you, (I am a giver that way). We both know what it's like having to deal with that person who is just better at everything than we are.

It is tiring.

It is frustrating.

And often, we will simply give up and move on to something else when we really should have stuck with what we loved.

Everything is comparative. If you get a job at Google you are probably going to feel dumb much more often than you are accustomed to feeling.

Note: I had a recent piece over on Fistful of Talent that looks at this topic a little more as well. 

Have a great week!