True price of an Uber ride in question as investors assess firm’s value | Reuters

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RECKONING SOON?

Uber’s losses stem from its drive to win global market share at almost any cost. That strategy was built on the assumption that Uber could achieve a dominant position in many big cities quickly and eventually raise prices. Kalanick himself said low fares were temporary.

But eight years in, the strategy is now in doubt as competition in many markets continues to intensify. Uber must solve the problem of how to eliminate subsidies without losing customers and thereby undercutting its valuation.

“There is going to come a reckoning and they are going to have to raise prices,” said Brent Goldfarb, associate professor of management and entrepreneurship at the University of Maryland. “But we know what happens when you raise prices – demand goes down, and perhaps substantially so.”

Uber has raised about $15 billion in funding since 2010, enabling it to discount fares and dole out bonuses to drivers that have at times exceeded $1,000.

In 2015, Uber passengers were paying only 41 percent of the actual cost of their trips, according to an analysis by transportation industry consultant Hubert Horan, based on financial statements from Uber.

FALSE SIGNAL

The Uber executive who spoke to Reuters pointed to a new “upfront” fare system that gives passengers a quote before their ride starts as one of Uber’s key strategies to solving its pricing problem. In effect, it provides Uber a way to charge more without explicit per-mile fare increases.

The new system also uses an algorithm to better price rides to minimize losses. Someone requesting Uber’s carpool service on a route where there are unlikely to be other passengers to share the ride, for instance, will be quoted a higher price so the company does not have to eat the cost, said the executive, who asked not to be named.

The executive added that in the last year or so Uber has reduced its blanket subsidies and become better at targeting its promotions to both riders and drivers.

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True price of an Uber ride in question as investors assess firm’s value.