Lyft’s business model is broken. Here’s what I saw when I became a driver(slate.com)
slate.com
Lyft’s business model is broken. Here’s what I saw when I became a driver
https://slate.com/technology/2022/12/lyft-fares-price-business-model-uber-taxis.html
16 comments
I know this is overly optimistic but I've been inspired reading about maid cooperatives in NYC
https://www.google.com/amp/s/www.nytimes.com/2020/07/07/opin...
What if there was a driver cooperative competing with Uber where there wasn't huge overhead.
What if there was a driver cooperative competing with Uber where there wasn't huge overhead.
In the NYC there's already a driver co-op for ride sharing: https://drivers.coop/
Yes! Thanks that's exactly what I was hoping for. Sadly I'm not in nyc so I can't use it but that makes sense to me
>> I’ve basically described an old-fashioned taxi dispatch company—the kind that dominated the industry before Uber and Lyft came along
Unfortunately for you, Timothy B. Lee, I am old enough to remember the old-fashioned taxi dispatch companies, and I have to say, rarely was an industry more deserving of being disrupted.
Nice slatepitch though.
Unfortunately for you, Timothy B. Lee, I am old enough to remember the old-fashioned taxi dispatch companies, and I have to say, rarely was an industry more deserving of being disrupted.
Nice slatepitch though.
I'm old enough to remember them too! I'm not saying that system was better. I'm just saying it's weird that the new system is so much more expensive to run.
Around 2014, I spent about 6 weeks in Dublin on business. While there, me and the other out-of-town folks used the “Hailo” app to get taxis. You were getting a real licensed taxi, you got real-time updates on location, and you could pay through the app or directly in the car. (If the driver was great we usually paid direct because he got more of the money.)
That doesn’t fix medallion extortion, but something like that goes a long way to fixing the taxi industry.
That doesn’t fix medallion extortion, but something like that goes a long way to fixing the taxi industry.
People think that they can build Lyft in a weekend with simple GPS + queue system in reality it's a ton more complicated. There are
1. Dynamic pricing. Both drivers AND riders have different price elasticities depending on surge, etc. I keep hearing stories of "rider paid $100 but driver was only paid $30". It's almost always the case that a ride like that had surge pricing for a rider but not for the driver. In some scenarios drivers will get paid a higher fraction of the amount riders paid to incentivize more drivers.
2. Bonuses, streaks, and other incentives. Lyft/Uber are famously commoditized. So how do you incentivize drivers to driver for Lyft more? Using bonuses and streaks. There are whole teams that handle this.
3. National scale. Each taxi operator is roughly localized. Lyft is a national service. Uber is international. That's going to come with a ton more complexity.
4. Self driving. Ah yes, everyone loves to hate on self driving bc of broken promises. However, if you look at recent news of Waymo/Cruise in SF, you'll see it's having it's 0->1 moment. Uber/Lyft have to handle this in their business because ride share is actually THE path to commercialization for Waymo/Cruise. Taxi cab companies were never going to support self driving, and for the above reasons Waymo/Cruise are not going to build their own ride share infra.
1. Dynamic pricing. Both drivers AND riders have different price elasticities depending on surge, etc. I keep hearing stories of "rider paid $100 but driver was only paid $30". It's almost always the case that a ride like that had surge pricing for a rider but not for the driver. In some scenarios drivers will get paid a higher fraction of the amount riders paid to incentivize more drivers.
2. Bonuses, streaks, and other incentives. Lyft/Uber are famously commoditized. So how do you incentivize drivers to driver for Lyft more? Using bonuses and streaks. There are whole teams that handle this.
3. National scale. Each taxi operator is roughly localized. Lyft is a national service. Uber is international. That's going to come with a ton more complexity.
4. Self driving. Ah yes, everyone loves to hate on self driving bc of broken promises. However, if you look at recent news of Waymo/Cruise in SF, you'll see it's having it's 0->1 moment. Uber/Lyft have to handle this in their business because ride share is actually THE path to commercialization for Waymo/Cruise. Taxi cab companies were never going to support self driving, and for the above reasons Waymo/Cruise are not going to build their own ride share infra.
1 and 2 are not directly features from a rider perspective, and arguably not even from a driver's perspective.
They're trying to obfuscate and gamify the economics enough to disguise that they simply don't work out long-term for many drivers.
There are probably other models, many of which require much less complexity. Imagine a scheme with drivers on flat salaries, rather than trying to tweak exactly how much you have to pay for the 10 minute drive to compensate for 45 minutes of travel to and from the trip endpoints and sitting idle waiting for a summon.
3 is an extremely marginal feature. I need a Lyft in Chicago when I visit once or twice a year; I could equally use Happy Shiny Chicago Rideshare Ltd, and the fact they have no service in my hometown is rather immaterial. Maybe they could go for a co-op sort of concept-- regional operators who contribute towards shared marketing and development budgets.
They're trying to obfuscate and gamify the economics enough to disguise that they simply don't work out long-term for many drivers.
There are probably other models, many of which require much less complexity. Imagine a scheme with drivers on flat salaries, rather than trying to tweak exactly how much you have to pay for the 10 minute drive to compensate for 45 minutes of travel to and from the trip endpoints and sitting idle waiting for a summon.
3 is an extremely marginal feature. I need a Lyft in Chicago when I visit once or twice a year; I could equally use Happy Shiny Chicago Rideshare Ltd, and the fact they have no service in my hometown is rather immaterial. Maybe they could go for a co-op sort of concept-- regional operators who contribute towards shared marketing and development budgets.
The article seems to look at individual ride payoffs, but what proportion of the total comp is actually in driver bonuses?
https://www.lyft.com/driver/bonus
I have no idea and would like to hear any experiences people have.
Edit: some simple math that assumes this ad page is representative. Author did 100 rides for $1110. Meaning about $11 per ride. Ad shows examples:
$5 for 4 rides (~10% of pay)
Or (and?) $120 for 20 rides. (~50% of pay!).
This sort of makes sense if you want to disproportionately reward highly available drivers over infrequent drivers.
The article says that lyft charges $30 to connect riders to drivers but really it’s $30 to maintain a system where drivers are there, and then connect them.
https://www.lyft.com/driver/bonus
I have no idea and would like to hear any experiences people have.
Edit: some simple math that assumes this ad page is representative. Author did 100 rides for $1110. Meaning about $11 per ride. Ad shows examples:
$5 for 4 rides (~10% of pay)
Or (and?) $120 for 20 rides. (~50% of pay!).
This sort of makes sense if you want to disproportionately reward highly available drivers over infrequent drivers.
The article says that lyft charges $30 to connect riders to drivers but really it’s $30 to maintain a system where drivers are there, and then connect them.
Two big differences between taxis and Uber/Lyft, which explain their massive losses and weren’t mentioned by the article:
1. They provide insurance: It’s estimated that around half of Lyft’s operating expenses are for insurance [1], which in their filings is mainly under Cost of Revenue but some settlement expenses and other non-mandatory insurance coverage would be under General & Administrative [2] [3]. This was pretty surprising to me, as I never thought it’d be this much.
2. Costly driver incentives: Technically this is under Sales & Marketing, which is around 10% of expenses [2] [3]. However, Uber/Lyft can choose how much of a commission to take so that the driver keeps driving, so the incentive would then come at the cost of lower revenue.
These are vital to their operations because:
1. Commercial insurance could cost $400-700+ a month [4]; taxi drivers pay this themselves, but Uber/Lyft drivers don’t, paying a much smaller surcharge to their personal auto insurance because Uber/Lyft cover third-party liability during rides.
2. They need lots of drivers driving around in order to provide short wait-times. Outside of city centres, the wait-times for taxis can be pretty long, often requiring a reservation made hours in advance. Uber/Lyft gave people the freedom of owning a car at a price usually not more than $5-15 over a transit fare.
But being able to provide a ride in just a few minutes anywhere in a city even late at night isn't free. For instance, in NYC around 41% of driver time in 2018 was driving around waiting for a ride [5], which they aren't paid for. If there are plenty of drivers, Uber/Lyft can profit off them and let them churn, but if they're needed to properly serve an area or time-of-day (ie. keep wait-times low), that's where retention bonuses and letting them keep more of the fare come in as to motivate them to keep driving.
So in a way, when you're taking or driving a profitable ride where Uber/Lyft are making a large margin (like airport-to-downtown rides), you're subsidizing someone who picked-up or waited five minutes for a ride late at night outside some suburban bar. It's the latter kind of trips that most people wouldn't take a taxi for, having previously been made on transit, a personal car, carpooling, or not made at all.
This is a bit like how public transit works. The customers travelling on packed buses/trains in peaks subsidize those on the emptier late-night buses/trains. But remove that late-night service and some of those customers will buy a car and stop taking transit altogether.
As Uber/Lyft are forced to become profitable during a labour shortage, the profitable trips are becoming more expensive (often more than airport taxis) and the less-profitable trips are getting longer wait-times as less is being spent on driver retention (along with higher prices but maybe not as much because of the increased price-sensitivity of those trips).
This model was unsustainable from the start. Even with AVs, their R&D would explode and they’d have to assume the full cost of operating, maintaining, and insuring their fleet, all of which are currently offloaded to their drivers.
1: https://www.insurancejournal.com/news/national/2019/10/31/54... 2: https://investor.lyft.com/news-and-events/news/news-details/... 3: https://www.sec.gov/Archives/edgar/data/1759509/000156459019... (26-27) 4: https://www.carinsurancecomparison.com/taxi-car-insurance/ 5: https://www.reuters.com/article/us-uber-new-york-idUSKBN1YR1...
Sidenote: Am a transit planner and software dev, so researching ridehailing’s pretty interesting/relevant to me.
1. They provide insurance: It’s estimated that around half of Lyft’s operating expenses are for insurance [1], which in their filings is mainly under Cost of Revenue but some settlement expenses and other non-mandatory insurance coverage would be under General & Administrative [2] [3]. This was pretty surprising to me, as I never thought it’d be this much.
2. Costly driver incentives: Technically this is under Sales & Marketing, which is around 10% of expenses [2] [3]. However, Uber/Lyft can choose how much of a commission to take so that the driver keeps driving, so the incentive would then come at the cost of lower revenue.
These are vital to their operations because:
1. Commercial insurance could cost $400-700+ a month [4]; taxi drivers pay this themselves, but Uber/Lyft drivers don’t, paying a much smaller surcharge to their personal auto insurance because Uber/Lyft cover third-party liability during rides.
2. They need lots of drivers driving around in order to provide short wait-times. Outside of city centres, the wait-times for taxis can be pretty long, often requiring a reservation made hours in advance. Uber/Lyft gave people the freedom of owning a car at a price usually not more than $5-15 over a transit fare.
But being able to provide a ride in just a few minutes anywhere in a city even late at night isn't free. For instance, in NYC around 41% of driver time in 2018 was driving around waiting for a ride [5], which they aren't paid for. If there are plenty of drivers, Uber/Lyft can profit off them and let them churn, but if they're needed to properly serve an area or time-of-day (ie. keep wait-times low), that's where retention bonuses and letting them keep more of the fare come in as to motivate them to keep driving.
So in a way, when you're taking or driving a profitable ride where Uber/Lyft are making a large margin (like airport-to-downtown rides), you're subsidizing someone who picked-up or waited five minutes for a ride late at night outside some suburban bar. It's the latter kind of trips that most people wouldn't take a taxi for, having previously been made on transit, a personal car, carpooling, or not made at all.
This is a bit like how public transit works. The customers travelling on packed buses/trains in peaks subsidize those on the emptier late-night buses/trains. But remove that late-night service and some of those customers will buy a car and stop taking transit altogether.
As Uber/Lyft are forced to become profitable during a labour shortage, the profitable trips are becoming more expensive (often more than airport taxis) and the less-profitable trips are getting longer wait-times as less is being spent on driver retention (along with higher prices but maybe not as much because of the increased price-sensitivity of those trips).
This model was unsustainable from the start. Even with AVs, their R&D would explode and they’d have to assume the full cost of operating, maintaining, and insuring their fleet, all of which are currently offloaded to their drivers.
1: https://www.insurancejournal.com/news/national/2019/10/31/54... 2: https://investor.lyft.com/news-and-events/news/news-details/... 3: https://www.sec.gov/Archives/edgar/data/1759509/000156459019... (26-27) 4: https://www.carinsurancecomparison.com/taxi-car-insurance/ 5: https://www.reuters.com/article/us-uber-new-york-idUSKBN1YR1...
Sidenote: Am a transit planner and software dev, so researching ridehailing’s pretty interesting/relevant to me.
Maybe Twitter works yet because remaining staff is overworked, which kind of defies the point. Making drivers life easier by making engineers burnout is maybe a net sum, but does not look ethical
Also, taxi drivers in many countries are notorious for their dubious behavior. At first, ride-sharing was not like that. Now, it looks like a downfall.
Other then that, ridesharing provides valuable services. Many people hate calling. Security and reliability is higher in ridesharing. Convinience, too. Imagine calling for a taxi in foreign country vs calling an Uber.
Also, taxi drivers in many countries are notorious for their dubious behavior. At first, ride-sharing was not like that. Now, it looks like a downfall.
Other then that, ridesharing provides valuable services. Many people hate calling. Security and reliability is higher in ridesharing. Convinience, too. Imagine calling for a taxi in foreign country vs calling an Uber.
"There’s a thought experiment I find illuminating: Imagine that Lyft announced tomorrow that it was going to shut down its app and lay off most of its staff. Then it was going to open a bunch of call centers and hire people to book taxi rides over the phone instead. When a passenger wanted a ride, they would call a toll-free number (1-800-GET-LYFT, perhaps) and provide pickup and dropoff locations. The operator would then relay this information to drivers, perhaps in a group chat or over an old-style radio system, and one of them would claim the ride. The operator would provide the passenger with an estimated pickup time and take credit card information over the phone. Here’s the question about this hypothetical version of Lyft: Would it be more or less expensive to operate than the company that actually exists?" Hilarious.
"What if instead of these expensive apples, we announced tomorrow we were going to start serving you oranges instead?" I don't get the point of this thought experiment. I'm just old enough to remember the pre-rideshare days and I would literally go through the dispatch thing and it was terrible in comparison.
The point of the comparison was to argue that one would expect a system which involved vastly more human labor to be much more expensive, yet the author had figures which suggested it would be less expensive.
The implication presumably being that Lyft must be overspending somewhere.
The implication presumably being that Lyft must be overspending somewhere.
Yes exactly.
Is it managing accidents and ensuring passenger safety?
I don't even know if there's brand loyalty because the apps are so commodified and the drivers can work on any app
I've been hoping for an open source/community driven/minimal version of the app. A software dev puts together a very simple version and takes minimal overhead, no fancy features but geolocalized requests
I know I'm oversimplifying how much Uber does but it doesn't seem profound or impossible, 'just' network effects. And if I knew the drivers for a bigger cut and hypothetically it was cheaper for me too, it'd be so great