Return to site

The End to Medallions: How Uber’s Using AI to Eliminate Yellow Cabs

· Uber,Taxi,Taxi Medallion,Lyft,New York City

The End to Medallions: How Uber’s Using AI to Eliminate Yellow Cabs

In 2013, a New York City taxi medallion (permit) cost $1.3 million to purchase. In 2018, purchasing one of the same medallions costs an average of $186,000 – over an 85% decrease. In the blink of an eye, ride sharing services such as Uber and Lyft have quite literally pushed traditional cabs off of the roads. Taxis and ride-sharing companies provide the same services as one another – yet Uber is valued at $72 billion, and the value of NYC medallions currently is around $2.5 billion. Why this discrepancy? Friction, or lack thereof.

To hire a yellow cab, you must wait on the street until you spot a vacant cab, hail it down, tell the driver an address, then pay the fare once you arrive at your destination. Uber, on the other hand, simply requires you to enter your destination, place at pin at your current location, then be driven from point A to point B. Traditional cabs inherently involve a lot of friction, so the lack of friction is therefore what makes Uber and other ride-share apps so appealing. With a tap of your finger, you are given the ability to hire a personal chauffeur

Uber is an example of a company that has brought AI to the taxi industry. While yellow cabs remain traditional, Uber has realized that AI is a great way to handle high levels of demand to create a more seamless system. Though yellow cabs are limited to the intelligence of the humans who drive/dispatch the cabs, Uber’s complex system relies on a network of constantly accumulated AI. Since computers have far superior information processing and logistical abilities than humans, Uber is able to efficiently and effectively utilize this AI to maximize both customer experience and driver revenue.

On the topic of customer experience, AI is used by ride-sharing companies to provide the best service for each individual customer. When someone orders an Uber on their phone, Uber’s algorithms calculate which available drivers would be the best fit for the customer, looking at location, destination, and past ratings. It then automatically pings the most suitable drivers, one of which gets the ride. These algorithms are constantly updated based off of past trips to ensure future accuracy. Riders usually never have to wait longer than 3-4 minutes no matter where or when they request and will commonly be matched with a driver with shared listed interests. This complex network of AI that Uber has been multiplying over the last few years is what makes their service so appealing to customers – it allows them to pinpoint all of the details that matter to riders, and consequently adapt to them.

AI also allows drivers and Uber itself to maximize revenue in a way that traditional cabs have never been able to. Uber, like many ride-sharing services, implements a surge pricing system. This means that higher demand equals higher prices, and vice versa. This gives drivers more incentive to work during high demand times, which further inhibits traditional cabs. Information about demand is used to automatically calculate an appropriate surge price accounting for traffic, distance, and other factors. This surge fare is higher than that of normal cabs, but due to the frictions involved in hiring a yellow cab during high demand times, many people are willing to pay this premium. Uber constantly analyzes this information in order to offer the ideal price that maximizes revenue and ridership. Therefore, when demand is low, Uber is able to undercut traditional cabs prices being that they’ll make it back during high demand hours. Uber is able to maximize revenues for both drivers and the corporation itself by using AI to create a smart pricing system, essentially eliminating the need for traditional cabs with flat-rate pricing.

In today’s day and age, companies need to be able to change with the times – otherwise they will inevitably be eaten up by a newer and smarter company. With the internet, AI, and technology in general being so prevalent today, every industry is being affected. The taxi industry, in particular, has been completely revolutionized over the past 5-10 years, with ride-sharing services using AI to create more intelligent and efficient services. These companies have used these tools to maximize both customer experience and revenue – a win-win situation. If traditional cabs don’t adapt to the times, it won’t be long until a NYC medallion is worth $0.

Written by Dominick Ronan, Edited by Jack Vasquez & Alexander Fleiss

All Posts

Almost done…

We just sent you an email. Please click the link in the email to confirm your subscription!