What is so great about Uber’s operational strategy?

Author's note: UBER's way of playing is worth learning from for the Dongguan hotel industry. If the hotel industry also hopes that its drivers (ladies) will pick up more customers, it would like to see how they formulate the rules of the game to motivate service practitioners. In addition: This article was written for the WeChat column "Nie Shuai Says". Zhihu does not have a column, so I am asking and answering my own questions. Please forgive me.

Recently, UBER's People's Uber has been very popular. This was not the case when UBER first entered China last year. In fact, we at Aite Surprise have already formed a cooperation with UBER, using high-end cars to deliver flowers to our users and pick up guests to designated restaurants. Therefore, we have a better understanding of UBER's development process along the way. It was not very popular then, but it has suddenly become popular recently. I told my friends a few days ago that I had a sudden idea and wanted to apply to become a driver for People's Uber, pick up one customer a day, and live-stream the stories that happened between me and the passenger that day. My friends encouraged me a lot. (When will Dongguan's hotel industry become interesting enough to make people outside the industry want to try their hand in it?) Actually, my initial idea was very strange. I wanted to use the half-hour daily pick-up time to get to know some neighbors from the community on the way to get off work, and interview some engineers near the company's science park after work. Every time I picked up a customer, I could get a user of our product for free (even get car fare in return! I have to admire my own wit, don't I? ~~) Another thing is that when I inadvertently negotiated a financing of tens of millions over a phone call, I could appreciate the surprised expressions of the passengers in the rearview mirror. All of this was so fun to imagine. So, motivated by this, I, who always liked to play some informal games, began to seriously study the application process for Uber drivers. This research is not a big deal, as it found out why UBER was able to grow so rapidly with a team of no more than 10 people operating in each city. I found that in addition to having strong Silicon Valley genes and solid capital strength, the most admirable thing is that they have developed a set of awesome rules of the game to improve operational efficiency. This is worth learning for every product manager, entrepreneur, and manager, not just the hotel industry. Let’s analyze it one by one:
1. The reward policy is different every week and updated in real time (the bonus is also paid out weekly, while the fare is paid immediately), which means that they are constantly using the bonus lever to test the balance point between the increase in the number of drivers and the number of users. The subsidies are outrageous, so burning money must not be a long-term behavior.

2. From the incentive policy, we can see that at this stage of competing with other XX private car companies for private car drivers, the drivers' income for each order is at least twice the usual amount, and can reach 3 times during peak periods. This number may not sound like a big deal, but it is terrifying when it comes to the drivers' income. You say your normal monthly salary is 10,000, and now it suddenly increases to 20,000. If your effort increases by 50%, it will become 30,000, which is three times the usual 10,000. My God, if you were in their shoes, would you work hard for your life? Because drivers are also well aware that such subsidies will not be available often, and they have to seize this good period of opportunity. So the harder the drivers work, the more users feel that there are so many People's Uber cars everywhere around them. You can see the map is full of little red bugs crawling everywhere. It's a really good experience. "Okay, then I will use this tool in the future." With more users, it becomes easier for drivers to pick up passengers, so they start to work for Uber wholeheartedly. . . Thus, the potential energy bridge between the user and the driver is completed. For Internet products, what matters initially is user habits. Once user habits are formed, the mission is basically accomplished. (Of course, a reduction in rewards will create new circumstances that require new strategies). At the same time, we also saw that UBER has a trick up its sleeve. The reward for each trip is capped at 50 yuan, which means that a normal 25 yuan trip with a fare three times the fare during peak hours can reach a revenue of 75 yuan (25×3), which is a singularity. If the fare is 40 yuan for an ordinary trip, you can only get 40+50=90 yuan if you multiply it by 3 times, instead of 40×3=120 yuan. I think this rule was made not because Uber cannot afford the subsidies, but to prevent some calculating drivers from deliberately taking large long-distance orders during peak hours. For example, if there is no upper limit, the amount will reach 600, and it will be too easy to make money like this. Therefore, you don’t have to worry about it and just focus on picking up more passengers, because keeping drivers on the road more often is the core of all UBER’s operating policies. You can still see this in the following analysis. Of course, in addition to peak-period rewards, there are also rewards for rushing orders, which are included in the sales policies of many products. The more orders you place, the more additional rewards you will get for rushing orders. It is worth mentioning that 10 orders are a step, which means that the reward for 31 orders and 30 orders is the same, 300 yuan. If you want to get more, you must aim for 40 orders. So the drivers would secretly calculate that they have already received 38 orders this week, so why not do two more orders to reach 40, and then they can get another 400. You see, it’s still the strategy I just mentioned, which is to let more drivers drive.

3. Subsidies and rewards are subject to prerequisites. Don’t just focus on the money part and ignore the requirements you need to meet. The star-level threshold setting of 4.8 still reflects the core purpose of encouraging you to make more visits and receive more customers. Many people don't realize what 4.8 means. That is, once you get a 4-star rating due to a slight lack of service, you have to raise the average to 4.8 with 4 five-star ratings. In other words, you didn't want to run this week, but because you couldn't reach the 4.8 threshold, you couldn't get the bonus, so you had to take on 4 more customers and provide attentive service every time to ensure you get 5 stars. Fortunately, they didn’t set the threshold to 4.9, otherwise you would have to get 9 more 5-stars in return if you got a 4-star rating. This will greatly increase the difficulty, and thus many drivers will choose to give up the bonus, and gradually abandon this platform and switch to other competing products. Therefore, you see how precise the scale is, a slight increase of one point will be too much, and a slight decrease of one point will be too little. That's the beauty of game rule making.

Let’s look at the second threshold: the order acceptance rate must reach 80%. What is the order acceptance rate? The platform designates you as the person closest to the customer to accept the order. A circle will pop up on your client and you have to accept the order within 15 seconds. If you do not accept the order more than twice out of ten times, or you are doing other things and do not accept the order, then I'm sorry, your order acceptance rate will be less than 80% and you will not be eligible for the bonus. What does this policy guarantee? It is to ensure the user experience of passengers. Users can always get a reply within 15 seconds saying that a car is coming. What kind of feeling is that? It’s just awesome, isn’t it? Even if a taxi is coming from a distance with its empty car lights on, you cannot be sure whether it will stop, whether it will stop in front of you among the many waiting passengers, or whether it will take you to your destination. These taxis cannot give you a sense of security, but UBER can give you that within 15 seconds. The subsequent call from the car owner and driver made you feel relieved. The only thing you need to worry about is whether he can arrive on time due to traffic jam on the way to pick you up, but what does it matter? It’s already very happy to know that someone is coming to pick you up, so what’s the harm in waiting a few more minutes? If you know that there will be someone to marry you in this life, would you care whether he appears when you are 25 or 30?

Let’s analyze the second sentence of the rule marked in red: “If you don’t believe our data statistics, you can choose not to strive for the reward, but do not come to us for a debate. Debaters will terminate your cooperation.” What a domineering clause this is? But as a company founder and product creator, I deeply feel how important this domineering existence is. The charm of a domineering president is sometimes reflected in his domineering behavior. Sometimes, for various reasons, we don't have the time, energy or need to explain more to our employees, partners or even users. In fact, most of the time, you just need to follow the rules I set. You just need to believe in my IQ and my experience. The rules I set will definitely be better than you can think of. That's enough. This is a kind of trust in the leader, the product, and the brand. And this trust can reduce a lot of our communication costs. - Just do it, no need to ask why, because I don’t have time to reply you at the moment! As a company managed by a very small elite team in the country, UBER certainly cannot accept trivial complaints from drivers one by one, so the way they choose to deal with it at this time is: work hard and don't complain. Cheers to UBER's dominance.

The last one is about the referral reward. After you introduce a friend to become a driver for People’s Uber, you will not be rewarded 200 yuan directly. Instead, you will be rewarded after the introduced new driver completes 20 orders. You see, this is the principle I just mentioned. Drivers, get running and go out to pick up passengers. Doesn’t it sound like the voice of a mama-san in a brothel? Yes, but UBER uses economic leverage instead of direct shouting.

4. UBER believes in the power of economic leverage. Because Uber drivers are only partners, not employees, they never require Uber drivers to do this or that. Instead, they suggest this or that, because if you do this or that, you will get good reviews, and as mentioned earlier, good reviews are the threshold for getting rewards, so in essence they still manage through economic means. This is the power of the rules of the game, which is better than you saying ten thousand words.

5. "Permanent suspension" is a disaster for drivers who work hard to make money on this platform. Therefore, drivers must read the numerous "permanent suspension once discovered" clauses carefully, and they have to consider whether it is necessary to take these risks. For example, this one, "Contacting customers without permission after completing the trip" and "Once discovered, the account will be permanently blocked", will not work for those who want to meet beautiful women and pester them in this way. Of course, if the flirting is consensual, the victim will not complain, so it will never be discovered. Not only will they not complain, they will also be grateful for such a platform. However, the UBER platform may be more concerned about not wanting drivers and passengers to form long-term contract relationships, because if too many such relationships are formed, there will be no dependence on the platform. So it must be eliminated.

6. The car model requirements for People's Uber are not high, and a car worth more than 80,000 yuan will do. Although many luxury car owners are joining out of curiosity, the prices are not different because of their luxury car models (I am referring to People's Uber). In other words, due to the high fuel consumption of luxury cars, if you really want to do this business, you will not make as much money as low-priced models. This seems unfair. You provide luxury cars for users to show off, but you cannot charge a higher price. You must feel unfair. But in fact, the smart UBER has already seen through all of this. If you want to show off with a luxury car, then please go for the exclusive series, or Uber black. The one is more expensive. If you just want to get around, please use the ordinary cars of People's Uber. If you are lucky enough to meet a tall, rich and handsome man driving a Mercedes-Benz, you can just be thankful. UBER is also very clear that these tall, rich and handsome guys are just here for fun. Curiosity and fun are the driving forces, and their enthusiasm is only short-lived. They don't need the money at all, so how could they go around the streets to pick up passengers for you? There are also rich girls who go to KTV to work as hostesses, but they just want to have fun and make some money at the same time. Do you expect her to be a hostess every day? Stop dreaming, isn't this the truth? For example, my original intention was actually to write stories for my column "Nie Shuai Says" (public account: nieshuaishuo), and then I thought of attracting customers. I left my own company alone and went to do the business of receiving customers? Am I crazy? Therefore, there is no need for people to make a special price for your so-called luxury car, because they know you won’t be able to play with it for long. However, in the early stages, such influential customers still play a very important role in word-of-mouth and marketing, so they spare no effort to hype this point. About tall, rich and handsome men, about romantic encounters, about romance. . . It is precisely because of the large number of promotional stories like this that girls have developed a certain fantasy about UBER, thinking that using UBER has the same effect as getting admitted to the Cheung Kong Graduate School of Business. Therefore, according to background data, young female passengers account for a large proportion of UBER users. This effect is a positive cycle. With more female users, male drivers feel that their opportunities have also greatly increased, and they have extended their dating opportunities to UBER. According to a friend named Lu downstairs, this way of finding a rich husband is indeed much more effective than going to Jiayuan.com in terms of implementation and accuracy. Annual income may be written on dating websites, but do you believe it? There’s no tax on bragging! The Uber driver actually has a nice car in front of him, which cannot be fake. Even if one in ten thousand people rents it and dares to rent a car to pick up passengers or pick up girls, I have to say that he is a talented person. The idea is exactly the same as that of our users who use Aite elevator posters to find marriage partners: hang large and exquisite dating posters directly in the elevators of high-end communities in the city through Aite. No matter whether you rent or buy the house, the people who can come and go in this high-end community can't be too bad, so economical men can be directly filtered out. Simple and effective!

7. UBER is very strict in handling complaints. Because they have adopted a very generous reward policy, drivers are flocking to it. It is equivalent to giving money to the drivers. Therefore, no matter how stringent the requirements are, drivers will comply. Are you kidding? When the boss gives you a red envelope and scolds you a few words, shouldn’t you accept it with a smile? You dare to talk back? With such strict management, if other companies do not have the financial strength to support it and rashly follow suit, the results will definitely be different. The drivers will say: Damn, I can't make much money, and I'm still oppressed by your various strict systems. I quit! Complaints are classified into primary, intermediate and serious levels, and the tolerance for mistakes varies. Why do they take complaints so seriously? The experience of C-end users is always the foundation of Internet products. What about drivers? That is leveraged by capital, and anything that can be solved with money is not a problem. So it doesn’t matter if the driver bullies you. He may be soft-hearted if he gets paid. If he accuses you wrongly, it’s unfair. It’s better to kill someone by mistake than to let him go. And the user is the one who pays and is God. UBER has a clear understanding of the relative importance of the two.

8. I think the premium algorithm and the automatic matching algorithm to be discussed below are the core of UBER's entire product, so I will discuss them last. Everything mentioned above, about how to attract drivers, how to invest capital, how to fool users, how to provide a good experience, and how to manage drivers, it doesn’t matter which company does all of this, as long as they master the method. I believe that the reason why UBER is so popular in hundreds of cities around the world is because of these two core algorithms. The premium algorithm is based on their 100% belief and 200% understanding of the regulatory function of the invisible hand of the market. I have to admire that people who have been educated in old-school capitalist economics have a much deeper understanding than those of us who have been delayed by the planned economy for a few years. Otherwise, the capitalist society that started so many years earlier would have worked in vain. As they themselves said, "The premium is not planned, but is based on the dynamic balance of supply and demand." We don't know the specific algorithm, but we can still guess the basic logic. The premium coefficient must be determined by the ratio of the demand sent by users in that area and the number of drivers. Because of the emergence of the premium, when more drivers rush to the scene to put out the fire, there may be a situation where there are more drivers than passengers. Therefore, decisively canceling the premium will reduce the coefficient, so it is said to be a dynamic balance. Of course, the peak hours in a region are roughly predictable, and all previous data can be used as a reference. However, as the number of UBER users and drivers increases every day, the situation will be different every day, which does require a complete algorithm design solution to deal with it. This involves many aspects such as big data, user growth forecasts, and even local traffic jam forecasts (such as the end of a concert), which is a test of the R&D team's strength.

9. Automatic matching algorithm: Unlike other software, UBER does not require people to fight for orders. Instead, it assigns orders to the nearest driver. They believe this maximizes the overall resource efficiency of society. Therefore, drivers do not have to be in a tense state every day to grab orders. This state is indeed prone to neurasthenia over time. Not to mention, if you grab red envelopes every day during the Spring Festival and your waist, neck and elbows ache, you will know how to damage your body if you maintain this state for a long time. This frees up the drivers' nerves, so they don't have to worry about the problem of grabbing orders, but they then need to consider another question: In what geographical location am I likely to get orders? This is actually the question that the designated drivers have to consider, whether it is restaurants, cafés, office buildings or airports, these drivers know it very well. Regarding UBER not requiring reservations, their argument is that when a car arrives within 3 minutes, then there is naturally no need for reservations. This is of course correct, but it is somewhat idealistic. Why does the "wait and see" thing exist? Because some places have good business, while some places are remote and have no customers, so the fewer customers there are, the less people like to go there. There are many such blind spots in every city. No matter how abundant the number of drivers is, I believe that blind spots must exist. If there are blind spots, you need to make an appointment, and it is impossible for a car to come within 3 minutes. I wonder if UBER has thought this through. If you don't make reservations, there will definitely be passengers who leave their contact information with the driver and contact him privately, thus getting rid of the transaction on the platform. This will definitely happen!

10. It is said that the never-ending multi-person ride plan developed by the Silicon Valley headquarters has already started in San Francisco. This algorithm is even more amazing. The driver takes A to place A. On the way, he receives a request from passenger B who wants to go to place B in basically the same direction. So he continues to go to place A or B along B (whether to go to A or B first depends on the plan), and then this process repeats continuously, taking C, D, etc. . . Theoretically, a 4-seater car, if the algorithm is correct, can indeed always keep passengers getting on and off in the same direction, just like a bus, but the route is never certain and can change at any time. . . This is easier said than done, but it is actually quite impressive in terms of programming. I am quite looking forward to coming to China. . . Wouldn't it be interesting to have friends changing all the time along the way like a revolving lantern? Does the famous chicken soup theory that life is like riding a bus need to be revised?

Finally, to briefly summarize the above analysis, UBER is a company that believes in using market-based economic levers for regulation. They use this as a baton and formulate relevant rules of the game. The core of the game is to do whatever it takes to keep drivers running, because this is the foundation for the platform to attract users. When the user base reaches an inflection point, it is possible to unleash more nuclear reactions mined from big data. So, may I ask, as you also work in the service industry, what have you learned?