Taxi costs in many areas are driven by high barriers to entry (medallions or tests) and taxi drivers spend a high percentage of their time waiting. The surge pricing system and apps can better match demand and supply so that you should be able to get the same hourly wage for lower costs to the passenger.

The problem currently just is that while Uber could be something like 25% cheaper, they are actually rather 40% cheaper and pay the difference out of their own pocket.