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Tipping on Uber

by in Telecom

Tipping is stupid. Yes, it’s a nice thing to do and often gives pleasure to both giver and receiver, but it’s ultimately a bad deal. Tipping is not common in most countries but thrives in America.

One thing that Uber got right was the elimination of the tip, but this doesn’t sit well with many drivers (and passengers). It reared its head last week, and now you can expect drivers to have one hand out for tips. It’s an example of entropy of good services.

I do tip, not because I want to but because it’s the system. My complaint here is with the system. You could argue that I’m cheap, and you might even be right. But that’s not the point. The issue is that tipping makes no sense, it’s awkward, and somewhat meaningless.

Tips Make No Sense

In many jobs, such as waiting tables, the tip is the primary form of compensation. Effectively. the establishment owner avoids paying a reasonable wage (or any wage) and instead hopes the customer will voluntarily compensate the employee. Personally, I rather pay more for the food. Doesn’t that make more sense? With most services we pay the published rate. We don’t tip most providers such as our airline pilot, bank teller, dentist, rental car counter clerk, or grocery cashier – their wages and salaries are built into the price of the service as they should be.

Tips Are Awkward

In the case of restaurant servers we follow a percentage of the bill philosophy. I ordered the burger with water was that really less work for the waiter than the steak and beer? I almost always ‘just have water’ in restaurants (a first world benefit), and sometimes I feel guilty – like I’ve really disappointed the server.

Tipping makes no sense and is awkward because of the unwritten rules. It is not a crime not to tip, but it does piss people off. I prefer rules be clear. Is it 20% of the total or the subtotal?  Do you tip for take-out? Do you tip a rabbi?  Do you tip a hotel maid? Do you tip a prostitute? (of course most illegal activities have unwritten rules, but just for grins assume a prostitute in a legal brothel).

Why do we tip a taxi driver but not a bus driver? Why do we tip the pizza delivery dude but not the UPS guy? Why do we tip the bartender, but not the cook?

Tips Are Meaningless

The logic of the tip is that creates an incentive for better service, but it doesn’t. Studies have shown that people more or less tip the same regardless of the service received. Don’t confuse this with an appreciative tip for spectacular service. The difference here is that it is beyond the norm on both sides. I don’t have a problem with tips for extraordinary service, my beef is tipping for usual or expected service. The problem with most tips is they are just part of the compensation, so should be part of the price.

While tipping patterns are not significantly correlated to service quality,  the opposite is not true. I have noticed that in non tipping countries service can be a notch lower than US standards. So tipping isn’t all bad. It can provide a form of quality control for service workers, but it should be on top of a reasonable wage.

Now the Uber driver does have some discretion and control in how they deliver the service. So if/when warranted, tip the driver. Uber actually thought this through and put in a feedback system. I assume these feedback scores do indirectly impact compensation, but I can’t confirm. Uber does not want to communicate that a tip is expected, required, or part of the driver’s base compensation. This is the reason the Uber app does not ask for a tip (like the Lyft app does).

Understand that Uber revolutionized the taxi business by changing everything that was wrong with it. They basically took all the unpleasantness out of the process including the hailing or dispatch-without-status, the crappy car, and cash payment process, the fear the driver was taking you the long way, and of course the tip. Uber-X brought back the cheap car, but that was actually ok because they are still relatively clean and presented as an option.

Taxi drivers rely on tips – we voluntarily pay more for the delivered service than the list price because the driver needs to eat.  Uber is simply stating driver compensation is not dependent on tips (that’s good), or in their words there is “no need to tip.” For all the crap Uber gets, it appears they got this one right. It  also means that Uber may need to increase rates in order to keep drivers motivated. That’s also reasonable and good.

But a lot of people feel tipping should be part of the process and that it should be built into the app’s payment process, so Uber is denying them a basic right. Many drivers agree. They want Uber to add a tip option in the app. It seems like a simple request, but it’s a slippery slope. First off Uber pays fees on the money it collects (credit card fees, discounts, credits, etc.). So if someone tips a $1 – should the driver get a $1 or the balance amount after fees? If Uber manages tips then there’s also implications around tax reporting – there’s a trail now (and who knows what the big data scientists will uncover?)

Uber’s brilliant response to the dilemma is that tips are always allowed (there’s very places where tipping is against social or legal norms). The drivers are now expected to interpret this as a need to ask for tips. This can be done with a sign, a tip jar/box, or an actual verbal request. All of which could add degrees of discomfort as we enter the realm of unwritten rules. Do we tip Uber drivers the same as taxi drivers? Do we tip Uber drivers the same as Lyft drivers? Which is more important the tip or the feedback stars? If you carpool with Uber do you coordinate tips? Does the lack of a tip potentially impact your feedback score as a rider?

Another issue is this means that riders will have to potentially carry cash to tip. First off that’s not entirely true – you could ask for a Paypal ID or other electronic payment option (why not?), but more importantly who cares? Tipping is usually a cash-based (unreported) transaction. When I travel I have to remember to get cash for various tips. Add ‘get cash’ to your list of routines somewhere between brushing teeth and cleaning the garage.

I think Uber responded correctly, but I suspect (as usual) I’m in the minority. Americans feel a need to tip. I see this on my international travel. It’s the American way, who cares that I’m not in America.

I think the lack of tip was something that Uber nailed. Especially combined with feedback scores.

Most of us appreciate Uber because it provides a better experience and value over taxi’s. So much so that the taxi’s are going away. When the taxi comparison is gone will people still like Uber? That depends on how seamless and easy the experience remains. Don’t count on the invisible hand or competitive disruptors, the airline industry has agreed on terrible service. I am glad Uber stood its ground, but sorry to see the debate.

 

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  • Shah

    Tipping should not be expected however uber expects drivers to bear all the car cost; fuel, insurance, etc. At the same time lowering prices for fares meaning drivers get less but strangly increasing thier comission from 20 to 25%. Hence lowering driver taking further while increasing thier profit and winning more market share with low fares. Combine no tipping policy and tipping not included in fares dispite confusing customers as if its all included results in slave labour as drivers are self employed with no employee rights. Miss leading & evil company. Either increase fares, lower uber comission or add tipping feature.

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Dave Michels By


Dave is an independent analyst focused on enterprise communications. he provides public content on TalkingPointz and other industry websites, and also works with clients directly.