Uber's U-turn on tipping is its smartest move in a long time

Uber has finally begun rolling out a tipping feature. Source: Uber

Update: This story has been updated to reflect Travis Kalanick’s resignation as CEO.

Uber is bringing tipping to its car-hailing platform. In an email the company sent to its drivers, the company announced that Seattle, Minneapolis and Houston would debut the feature. The rollout will be complete by the end of July 2017. 

This is the first major change to Uber’s service since CEO Travis Kalanick took a leave of absence. On Wednesday, Kalanick resigned as CEO, but will remain on the company’s board.

Other driver-friendly features include a shorter cancellation window, paid wait times starting two minutes after arrival, and more. The changes follow shakeups at the company following a series of scandals that so far haven’t appeared to hurt ridership, at least in the US’s largest city.

Uber rival Lyft has had a tipping option built into its platform for quite some time, so Uber is simply toeing the standard for the industry.

“This is an important first step toward a more fair ride-hail industry,” a spokesperson from the Independent Drivers Guild, which represents 50,000 app-based drivers in New York City, said in a statement. “Cuts to driver pay across the ride-hail industry have made tipping income more important than ever.”

Uber ends a long debate over tipping

In the past, the question of whether gratuity was included put a canyon between the company and drivers. Many passengers assumed that the sleek Uber model meant the price was simply the price—a fair price—and worrying about tipping was history. However, the company admitted it was not included, and subsequently allowed drivers to add signs advising riders as much.

Doing something to please the drivers is not something Uber has been doing lately. But it may be a shrewd one given the fact that other competitors like Lyft, Juno, and Gett have made progress getting more and more drivers and cars on the road.

Uber’s u-turn on tipping happened without CEO Travis Kalanick, who has resigned as CEO.

Fundamentally, Uber is a middleman between passengers and drivers, and keeping drivers happy enough to stay on the platform is as important an objective as the company has.

Adding tipping is a way to increase compensation for drivers without actually having to pay; the company is not changing its commission structure and the tips come from the passengers. What will be interesting to watch is whether the tip prompt changes customer behavior, which is likely what prevented Uber from adding a tip screen until now. (User-friendliness was often pointed to as the other reason the company eschewed a tip option.)

Consumers will barely notice higher prices due to how the app works

Tuesday’s news will mean riders will likely be guilted into paying a little more. It’s very bad form not to tip in industries that incorporate tipping into the payment method, which includes the taxi industry.

However, it’s unlikely the tipping option won’t change what consumers do in a significant way. The price the app provides riders still won’t include gratuity just as a restaurant menu doesn’t include a gratuity, so a high sticker price is removed as a dissuading factor.

Similarly, the disassociated nature of payment—through credit card information entered some time ago—puts the price and actual payment even further from the rider’s mind. The only times a rider might wince at the cost might come at either the tip screen, after the ride has been completed, or when the email receipt arrives, which may not even be read.

If Uber manages to get its plans for world transportation domination back on track after Kalanick’s departure—the company is now being run by a 14-person committee—the tipping may be only temporary. A self-driving car does not need a tip.

Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, tech, and personal finance. Follow him on Twitter @ewolffmann. Got a tip? Send it to tips@yahoo-inc.com.

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