Why the surge-pricing fiasco is great for Uber

December 30, 2013: 1:22 PM ET

Like a buzzy nightclub with velvet ropes, the luxe car service was never intended to serve everyone. The real surprise was that people thought otherwise.

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FORTUNE -- On Dec. 14, as heavy flurries and hail pounded pedestrians on Manhattan's streets, cookbook author Jessica Seinfeld -- wife of comedian Jerry -- shared an Instagram photo of a taxi receipt for $415, to which she appended the following tags: "#OMG #neverforget #neveragain #real."

This was no ordinary taxicab. That night, Seinfeld had used the mobile application and driver dispatch service Uber to transport her kids to a sleepover and a bar mitzvah. Inclement weather had predictably ratcheted up demand for rides in a town teeming with pedestrians. The shocking bill came courtesy of Uber's controverial surge-pricing policy, which multiplies fares as demand escalates. That night, prices more than octupled.

From a business perspective, the Saturday night storm could not have been more perfect for Uber: New York City's already vibrant nightlife was augmented by a spate of holiday parties, presenting commuters with a difficult decision: drive on icy roads, take the delayed (and packed) subway, brave the elements with the hope of hailing one of the few empty taxicabs on the street, or have Uber dispatch a driver at your service?

So goes the oft-repeated maxim: You can have anything, for a price.

Though Uber's mobile app issues a warning for heightened fares before it processes a request, Uber customers accused the company of price gouging. They commented, tweeted, and e-mailed their disdain for the practice, with comments like this one from @juliesschapiro: "That is robbery!"

MORE: The one move that might put Uber in the fast lane

Yet three weeks after the fact, an Uber spokesperson confirms the service has seen no slack in demand in the New York City market. Riders are still riding. You could argue that Uber received a ton of free advertising in the wake of the storm. And it didn't even have to pay Jessica Seinfeld for her celebrity endorsement.

Hang on a minute. Endorsement, you say? Didn't she complain about the service? She sure did -- as did many other influential New Yorkers. In doing so, Seinfeld and other notable people who enjoy sizable online audiences (such as venture capitalist Mo Koyfman, with more than 17,000 Twitter followers, and NBC sports reporter Michelle Beadle, with more than 823,000 Twitter followers) revealed that they use the service.

So goes another oft-repeated maxim: Any press is good press.

Despite what Uber's early marketing slogan ("Everyone's Private Driver") would have you believe, the service was never intended for everyone. Few people actually have a private driver; that's what makes Uber feel like such a luxury. Co-founders Travis Kalanick and Garrett Camp started Uber in 2010 because each wanted to be a "baller in San Francisco" -- that is, to be able to push a button and summon a driver with a "classy ride." Uber's website reinforces the service's upscale market positioning with monochrome images of a beautiful man and woman and slogans urging visitors to "Be the Boss" and "Arrive in Style." The message: We're a cut above your typical car service.

MORE: Uber responds to 'striking' Boston drivers

In the last year, Kalanick changed the way he talks about the company. He now says Uber is "a cross between lifestyle and logistics." What is the Uber lifestyle, you ask? Consider the marketing stunts the company has employed to reinforce its brand. Last summer, Uber offered to fly customers to East Hampton by helicopter for $3,000. Uber is the official wheels of the players' union for the NFL. (A rookie player's minimum base salary for the 2014 season: $420,000.) Earlier this month, the service partnered with Home Depot (HD) to deliver Christmas trees in a handful of cities; for $135, Uber coaxed customers to "pour yourself an extra glass of eggnog and watch your app" while the service delivered a seven- to eight-foot-tall netted Christmas tree with stand and gift -- no Clark Griswold antics necessary.

Uber never promises affordability. It promises glamour, convenience, and a dash of outrageousness.

In this way, Kalanick is the ultimate spokesperson for the service. Some CEOs apologize to irate customers even when their businesses are not necessarily at fault. Kalanick chooses to place the fault right back on his customers. In response to a customer that was angry about surge pricing, he wrote: "So, was it expensive. It was, and we wish it wasn't necessary. But if you did indeed take the rides described then you confirmed the price which was very up front, and then entered the multiple you read into a text box in order to double confirm." Translation: You're the dope, not me. You could have chosen to take the subway. (Kalanick then posted the entire exchange to his Facebook page, with a wry suggestion to his followers to "get some popcorn" before reading.)

MORE: Hey, taxi company, you talkin' to me?

Surge pricing exists in many businesses. Drivers see it in action every day at the pump. Restaurants and live entertainment have dabbled in it. And the transportation industry uses it extensively for ticketing. In another update on Facebook, Kalanick pointed out that his $660 one-way flight from San Francisco to Los Angeles on Christmas Eve cost just $58 if it were booked two weeks later. "11.3X surge pricing," he wrote drily. "Calling FBI/FTC/BBB/Valleywag to vent grievances."

This won't be the last time that Uber gets called out for its massive price hikes. Just this morning, as it has in years past, the company published a note instructing customers that surge pricing would be in effect during New Year's Eve celebrations. "We'll have a record number of cars on the road ready to get you where you want to go," the note says. "But, that doesn't change one simple fact: on NYE, everyone wants to move around the city at exactly the same time!"

"It's at 12:15 a.m. in cities around the world when the demand just way outstrips anything that supply can bring to the table," Kalanick added in a video explaining the holiday. "If you absolutely need a ride between 1 and 3 a.m., Uber will be very reliable. But it will be a pricey ride, and you just have to expect that."

That night, as the confetti falls and the champagne flows, some people will notice Uber's mile-high prices and recoil in horror. Others will shake their heads in reluctant assent. And others still will get a rush of dopamine in response to the outrageous figure before them -- the feeling that they are part of an elite group of high-rolling ballers, the kind of aspirational folks for whom Uber is really designed.

Seinfeld next posted to Instagram two days later. With 851 likes, the image featured a close-up of a burlap pillow with the following embroidered in formal cursive: "Because I Fucking Can."

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About This Author
Jessi Hempel
Jessi Hempel
Senior Writer, Fortune

Jessi Hempel is a New York-based technology writer for Fortune. She has written extensively about digital media, online advertising and social networking. Before joining Fortune in July 2007, Hempel worked at BusinessWeek and most recently served as their innovation department editor. Hempel is a graduate of Brown University and received a Masters in Journalism from The University of California at Berkeley.

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