The ride-hailing industry is facing a range of issues that are affecting both drivers and passengers. These issues include high commissions, platform-dictated pricing, lack of transparency and freedom, closed governance, and no loyalty.
Ride-hailing platforms charge high commissions to drivers per ride. The commission rates have increased over the years from a range of 5%-8% to 25%-30%, resulting in low driver incomes. The study by MIT has shed light on the bleak reality of ride-hail driving earnings. The figures reveal that the profits are "very low," with the median profit being a meager $3.37 per hour. This is a cause for concern as it means that the vast majority of ride-hail drivers are not earning enough to make a sustainable living. In fact, the study found that 74% of drivers earn less than the minimum wage in the state where they operate. This is a worrying trend as it not only affects the drivers' livelihoods but also raises questions about the sustainability of the ride-hail model. The study's findings highlight the need for better pay and working conditions for ride-hail drivers. It is essential for companies to ensure that they are not exploiting their drivers and instead provide them with fair compensation for their services.
Fare calculations in centralized ride-hailing companies are often complex and include hidden multipliers. Companies can infuse surge pricing into the platform at any time without notifying the driver or passenger. Ride-hailing platforms gather a treasure trove of data about their users, including their location, gender, spending patterns and history, contacts, and even their phone battery level.
The ability to analyze all this data through the lens of purchasing capacity, price sensitivity and behavioral science give these platforms dangerous potential to exploit users for profit. Personalized or discriminatory pricing is a growing trend, with 40% of brands that currently use AI to personalize the customer experience using it for tailored pricing and promotions in real-time. There are also many known instances of price gouging when the prices of ride services spike up to levels much higher than what could be considered reasonable or fair, making them exploitative for passengers.
Lack of Transparency & Freedom:
Drivers in the ride-hailing industry are typically classified as independent contractors(gig employees), but they often face challenges similar to those faced by traditional employees. Despite being labeled as independent contractors, they do not receive employment benefits and are responsible for covering all expenses related to their vehicles.
In practice, drivers have limited autonomy and are required to accept most ride requests, which limits their ability to operate as true independent contractors. Additionally, riders and drivers often lack complete information about ride agreements.
To earn bonuses, drivers are often required to work during rush hours and meet specific driving hour quotas. This creates a situation in which drivers are heavily dependent on ride-hailing companies for their income and are subject to the company's control.
Hegemonic practices within these centrally governed platforms control and suppress value creators. Driver demands are often unheard of, with drivers going for multiple strikes demanding lower commissions, changes in price, and increase in incentives.
As incumbents have established market superiority, introductory cheap prices are being hiked up, and inceptive promotional bonuses are being withdrawn.
To add to that, practices like “Surge Pricing” are becoming infamous among customers and are often a major factor in decreasing loyalty among riders.
Drivers are also not being loyal to a single ride-hailing service provider. Keeping up with the rapidly changing space of the taxi/ride-hailing ecosystem has become a daunting challenge for drivers, and it makes it rather hard for them to pledge allegiance to a particular ride-hailing platform.
The current state of the ride-hailing industry is plagued by issues such as high commissions, platform-dictated pricing, lack of transparency and freedom, closed governance, and no loyalty. These issues are making it difficult for drivers to make a living, and passengers are becoming dissatisfied with the service they receive.