Uber Reserve is better for you, and for Uber's bottom line

Reserve fixes the mess that was Uber's scheduled rides product

Uber reported an all-time high $4.1 billion in revenue from rides and other mobility services in the fourth quarter of 2022, capping a year of results that showed the ride-hail company regaining momentum after a long pandemic slowdown. For the first time since covid hit, Uber also generated more mobility bookings in the quarter ($14.9 billion) than delivery ones ($14.3 billion).

One product getting a lot of credit for the strong ride-hail results is Uber Reserve, a feature that lets riders book a trip up to 30 days in advance. Uber CEO Dara Khosrowshahi told analysts on the quarterly call that new mobility products accounted for $6 billion of gross bookings, or 20% of growth, in the latest quarter, with Reserve having the biggest impact. “We talked about it being over $2 billion,” he said. “It’s a terrific product, especially as travel opens up.”

Uber first launched Reserve in late 2020 in the U.S., expanding to other markets like the UK over the next year. Reserve replaced scheduled rides, a feature that did what it sounds like but not very well. The scheduled rides feature was supposed to let customers book a ride in advance at a fixed price, but really all it did was schedule the ride request, which was still dispatched shortly before the trip.

The result was that scheduled rides weren’t actually very reliable, as Uber didn’t guarantee a driver would accept the trip request at the prebooked price. I experienced this firsthand in early 2021. I had scheduled an Uber to take me to a hospital in London for a minor procedure—one less thing to worry about, I figured. Minutes before my trip was due to start, Uber notified me that “no drivers were available” for the ride and that I should request another car.

I remember panicking, then logging onto Uber to see plenty of drivers online. I placed a new ride request and a driver accepted it immediately. The difference was the trip now cost twice as much. Uber had quoted me £13.43 for the scheduled ride, but was now charging £26.85 for the same trip. I knew enough about Uber to see what had happened. Uber had booked my scheduled trip at one rate, then dispatched it when fares were surging. Clearly no driver wanted to take this low-paying trip during a surge period, so Uber cancelled it and forced me to rebook at a higher price.

I later flagged this to Uber support and asked them to refund me the difference between fares, arguing the pricing was deceptive and that if Uber had underestimated the fare then the company, not I or the driver, should have to bear the cost. Uber should honor the price it quoted me and pay the driver the going rate, I said. The support rep wrote back explaining that my trip “was taken during a time of high demand… we call this dynamic pricing.” The rep added that I was charged correctly as I’d “confirmed a current surge rate of 2.2X when requesting” and Uber would therefore be “unable” to adjust my fare.

Credit: Giphy

LOL. Now I was mad, and not only because Uber hasn’t displayed numeric surge multiples in years. I referred the support rep to Uber’s own page on scheduled rides, which stated that “When you schedule at least 60 minutes in advance, your price for the trip will be locked in,” and remarked that cancelling the ride and forcing the customer to rebook at the last minute was a nice way around that. Then I tweeted about it—not my preferred means of resolving these situations, but I wasn’t getting anywhere with support, and like I said, I was annoyed. I compared Uber’s actions to a hotel informing you at check-in that demand was unusually high and they’d cancelled your reservation, unless you wanted to rebook your room at double the price. You’d probably do it! You’d need somewhere to stay!

Sure enough, once the thread started getting traction, Uber support reached out offering to adjust my fare back to £13.43, not because the company had done anything wrong (surge “was expected because of the lockdown restrictions easing… and things were particularly busy that day,” the support rep wrote, which, gosh, sounds like just the sort of demand shock Uber could have anticipated and priced in!) but “as a gesture of goodwill.”

The new Uber Reserve makes a few key changes to avoid situations like this. First, it’s more expensive. Reserve rides include a reservation fee of $8-$12 in the U.S. (at least this was the range when it launched in 2020). This is different from and in addition to the booking fee. Uber doesn’t disclose the reservation fee amount in the UK, but when I put a couple test rides into my app I was quoted fees between £5 and £7.50. Reserve trips also have a higher minimum fare than regular Uber rides.

Second, it costs more to cancel. Where the cancellation fee for a standard UberX ride is around $5/£5, riders who cancel Reserve trips within an hour of the start are charged either the full upfront price (for premium trips) or the “minimum fare” from the price quote at booking (for economy trips).

“Obviously these trips are more expensive than the on-demand version of the trip,” then-Uber product manager Geoffrey Tam-Scott told the Verge in November 2020. “We’re trying to enable between the rider and driver the most reliable, assured experience that is possible. And so by adding this extra fee to the fare it makes the trips more attractive to drivers.”

Third, Reserve attempts to offer more certainty than scheduled rides did. For instance, Uber says that with Reserve, a driver is assigned ahead of time when possible and will arrive several minutes early, with 10-15 minutes of waiting time built into the fare. In some cities, there’s an option to request your favorite driver (side note: do people really have favorite Uber drivers?). Uber is marketing Reserve as perfect for travel and peace of mind, though it notes repeatedly in small print that “Uber doesn’t guarantee that a driver will accept your ride request.” Uber previously claimed Reserve rides were “on time, every time,” promising $50 of credit to Uber Black and Black SUV riders whose trips began more than 5 minutes late, but removed that language from the website last spring.

The sum is that Reserve is a more premium product than scheduled rides, which was more of an automated dispatch than an actual reservation. That makes Reserve more reliable for customers who can afford it, as well as more profitable for Uber. “We estimate that 50% of Reserve trips are actually incremental, they wouldn't have happened otherwise,” Khosrowshahi told analysts. “The other 50% are upsell, so to speak. They are more profitable than on-demand trips.”

This is all good news for Uber, which has repeatedly set its sights on becoming profitable—first on an adjusted basis and then in standard ebitda terms—and as such needs to switch from losing money to making money on most rides. It’s also yet another sign that a profitable Uber looks much more like a luxury car service than the impossibly cheap taxi disrupter of 10 years ago. I say impossibly cheap because the ultra-low prices Uber once charged for on-demand rides were literally only possible because of the billions of dollars of venture-capital subsidies backing them.

Can Uber be profitable? If Oversharing had a refrain, it would be that question. The answer is sure it can, as long as it charges more for the typical ride than it spends on it. That’s just unit economics! It’s what we love to talk about! Until recently, though, it was unclear whether Uber would actually make that shift, or if it would prefer to vanish in a flaming pile of cash than to charge customers the true cost of its service. Until even more recently, it was also unclear whether customers would be willing to pay those true costs after more than a decade of VC subsidies and artificially low prices.

As always, it remains to be seen, past performance does not guarantee future results, etc., etc. But for the moment, things at Uber are looking good. There are a lot of people in the world who use Uber, and clearly some portion of them are just fine paying the higher rates the company needs to improve its bottom line. And Reserve is proving a big part of that.

Ali Griswold @alisongriswold

Can Uber be profitable? 🧵 1. It's crazy that this is still a question! Uber is 13 years old. It does biz in 72 countries and 10,500+ cities. Last year it had 118mn monthly active users and did 6.3bn rides/deliveries