“I drove for Lyft for a week and learned its business model is broken”
fullstackeconomics.com
fullstackeconomics.com
The fact that Lyft takes a different percentage of each ride -- from less than 20% to more than 70%, in the author's experience -- is a reflection that at different times of day, on different days, in different locations, there are different mismatches between driver supply and passenger demand.
Lyft obviously pays the minimum needed to ensure available drivers, and charges the most that passengers are willing to pay. None of this is surprising -- it's how a market intermediary works. As more drivers sign up and are active in relation to passengers, driver pay decreases. As more passengers need rides in relation to drivers, passenger fares increase. And vice-versa.
The idea that taxi dispatchers could be more efficient, or as efficient, is ludicrous. Does nobody remember regularly waiting 30-60 minutes for a taxi from a dispatcher?
To answer the author's question, of course Lyft could make deeper cuts while keeping the core business running. But most of running a business is about reinvesting profits/capital into growth when growth seems available.
After all, the very first sentence on Wikipedia makes it clear all the things it's trying to do at once, of which ride-hailing is one of many [1]:
> Lyft, Inc. offers mobility as a service, ride-hailing, vehicles for hire, motorized scooters, a bicycle-sharing system, rental cars, and food delivery in the United States and select cities in Canada.
It takes a lot of employees to be doing all those things.
If the way things are before was better, why did we end in the place we are now? If the answer is 'no explanation' then it's this explanation, or alternative, which is bad.
In other words, if we rewound things back to where things were before Lyft... then we would expect them to end up in the same place they are now, [now-then] years later. It would just be a replay.
Now it's different if things changed: if computing power got 100x more expensive, okay, taxi companies might come back in style and win in a replay.
But failing that? Evidently people prefer Lyft & Uber to taxi companies: because the world was once [large percentage] taxi companies vs. [tiny percentage] ridesharing, and now it's the other way around, post-competition.
Note: to get to the author's preferred outcome, just assume a non-Lyft non-Uber low-cost ridesharing company. That seems like the best way to get to that point, without swimming against the tide of history.
Americans prefer taking an Lyft to not getting a taxi at all due to taxi number medallion cap. Most place did not have the problem Lyft and Uber solved. I.e. circumvent medallion shortages.
I could easily get a cab to the home from the city though.
There had to be something up there to.
I do know that in south america, it was different. You'd negotiate the pay before you got in so at least you knew if you could afford it or not.
There's a simple (potential) answer: market distortion through large investments that are gradually being spent down.
Not every system is in an optimal state, and sometimes things do actually get worse. To pick a random example, everything used to be on Netflix, now everything is split up among 50 different streaming services that all cost $15/month. If we rewound things back to before streaming fragmentation, I would expect a replay of what happened, but you can't use that as evidence that "I guess people just like it better this way". To conclude that requires a base assumption that American capitalism always produces an optimal state, which is just obviously wrong.
I don't think you're necessarily wrong about Lyft and Uber, but I don't agree with your principle that if you can't figure out why things have gotten worse, then you must be wrong and they're actually better for most people.
I'm sure it's true in quantitative terms that new streaming services are net new content, but there's a very long list of popular movies and shows that used to be on Netflix and no longer are, and a very long list of publishers that use to make new content available on Netflix and no longer do.
A very abridged list of existing content that Netflix lost: Star Wars, Marvel, Pixar, Disney movies, The Office, Parks and Rec, The West Wing, Lionsgate movies, Doctor Who, 20th Century Fox movies like X-Men, ABC Shows like Scandal, Naruto, most Star Trek shows, and on and on
All of this is regionally dependent I think, some things are probably still available outside the US.
Competition is very imperfect in a huge amount of markets, especially ones undergoing major changes.
Optimal for who? Your definition of "optimal state" is one-sided: optimal for the consumer, which forgets about the producer.
Your streaming example is great. In the beginning there was Netflix, and it was good (for consumers). But content producers were leaving a lot of money on the table. So now we have N number of streaming services, and N companies are making money with it. We consumers of course would _prefer it_ if we only had to pay one service, but I don't see Disney+ going out of business; clearly we are annoyed yet willing to pay. Viola, capitalism has optimized for the most money possible flowing through the system.
Right, and I don't think anybody on Earth considers "most money possible flowing through the system" to be a synonym for "the best system". My loose definition for "optimal state" in this conversation is something like "as many people as possible are happy with the state of affairs". That is not always the best definition, but when talking about streaming services or taxi models I think it's a good one.
"as many people as possible are happy with the state of affairs" seems bad to me. Taking all your money and splitting it between me and my friends would make a larger number of people happy than you keeping it; the government dropping free money in everyone’s bank account would make most people happy; it doesn’t mean that’s the best thing to do in a societal sense
This is just the parable of the broken window, using more technical terms. Maximizing money flowing through the entite system is not something anyone wants or needs.
When money movement slows down, the economy slows down. Take a look at your 401k returns this year and tell me nobody wants a good economy…
No, in what are now surge pricing situations, you used to usually simply not be able to get a cab at all. A tiny fraction of the time you'd get lucky and get a cab, maybe after waiting on a street corner for an hour trying to hail one. But usually you just wouldn't get anything.
Surge pricing removes the gamble and doesn't waste people's time. Either you pay lots for a ride soon, or you find an alternative means of transportation. It replaces unknowns with knowns. It's an improvement.
This does not line up with my experience at all. I see some of the worst surge pricing at non-peak times of day when it used to be easiest to get a taxi. This is most pronounced during the small hours where it's now nearly impossible to get a car.
Even during peak times you'd call the taxi company and they'd give you an estimate of how long you'd be waiting. Peak times are fairly stable and most people are sensible enough to phone ahead of time to reduce the wait.
If algorithmic pricing is a "feature" that incentivizes more drivers to get on the street, why were the airport taxis operating on a fixed pricing model moving so many more people in a surge situation?
Uber/Lyft want to call surge pricing a "feature" but the reality is that (like many other companies in this tech bubble) they have been so irresponsible with staff bloat and overhead that switching to a premium pricing model whenever the opportunity arises is the only way they can keep the balance sheet near even.
Uber, at least in my city, has given us a lower quality, less reliable, more expensive service. To the point that it's physically impossible to get a car at certain times of day.
With Uber, instead of pre-booking a taxi and the company making sure they have someone available or otherwise notifying me. I basically have to gamble that a driver happens to be using Uber and is willing to take an airport fare. I won't be able to make alternative arrangements because by the time I find out whether or not there's a driver available It'll be too late.
I'm sure something like a black car service is more reliable, though I don't know from experience. Small cities are much better with prebooking since it's probably harder to find another customer.
But with Uber there's always a driver around somewhere nearby in a large city. They might take 15 min to show but who cares? It sounds like you're in a smaller city where it's less reliable though.
My father had a habit of booking two competing Bach companies for biz trips to the airport because of this.
Personally I like that Lyft/Uber can tell me how much it will cost before I get in the car. Cabs can rarely do that and I have taken complete tours of cities at times when a more straight forward route existed.
Among other possibilities: because someone found some non-monetary value that could be mined, exploited or destroyed to make more money, competitors followed suit, and then there's no going back. The market has strong ratchet effects.
This happens quite often, because there is nothing stopping the market from optimizing past global optimum of service price vs. quality vs. availability.
This is a good principle to use, but it's fallacious to use it to argue that this means the place we are now is better in any kind of absolute sense. What it means is that you need to find who it's better for, and figure out what they were able to do to effect their will on the world to make it so.
In some cases, the current situation is objectively worse for everyone—sometimes even including the party that was attempting to optimize! People are very often wrong about what will give a better outcome, for them or for others.
Even if things are better for one or more parties, that doesn't mean that they're better for the system as a whole.
There is no "tide of history" in the vast majority of cases. There's just people trying to optimize for their own priorities.
In this case, IMNSHO, the thing that would have made the most difference is better regulations—both on the types of business that were being disrupted (eg, transport services), and on labor (eg, to ensure that Lyft drivers are being treated like employees when they are, for all intents and purposes, employees, and compensated and benefited appropriately).
The result is that existing players were forced out of business by a company that isn't even competing. It's a complete failure of the underlying principles of the free market.
When the investors have made out like bandits and the tap runs dry, consumers find themselves with poorer service. At that point the damage has been done and we have to hope that the business can actually be profitable while providing a similar quality of service to that which was available before.
On an unrelated note. The majority of Uber's early executive team belongs in jail. Their blatant disregard for the law should have repercussions. I find it repulsive that their actions are ignored while others are imprisoned for far far less.
Even if this is true, should this be celebrated even it comes at the expense of the > 99% of the population that doesn't work for Lyft as well as the thousands of drivers who are being exploited by their business practices? It is a relatively small minority of citizens who actually rely on these businesses for their day to day lives but their externalities are borne by all.
> The idea that taxi dispatchers could be more efficient, or as efficient, is ludicrous. Does nobody remember regularly waiting 30-60 minutes for a taxi from a dispatcher?
Even if you're right, this presupposes that it is a net benefit to have easily available taxis. It also seems to suggest that efficiency is best measured by latency between ordering a taxi and being picked up. Taxis are easily the least efficient form of transit. They are even worse than private vehicles because of the deadheading. Then there is the whole induced demand problem where they actually make traffic worse as people with the means opt out of more efficient mass transit so overall transit efficiency suffers even if it is (seemingly) more convenient for many users.
> In any case, yes surely Lyft could cut costs drastically in order to become more profitable, but it's also continuing to invest in growth as much as possible.
So they can try to hold the public hostage and mobilize their minority user base against any legislation that will rein in their excesses.
It reads to me like OP had an analysis that did not agree with the TFA, and that you read that take as an explicit endorsement as opposed to a description of what is going on.
And getting completely ignored should your pick-up location be on the wrong side of the tracks here in Palo Alto? Sure do.
It's interesting how it's now fashionable to bash on Uber and Lyft.
Seems everyone conveniently forgot about the medallion system Uber and Lyft disrupted. Pre-Uber/Lyft, either the driver rented the car to a middleman who rented the medallion from a rich owner, or said owner was selling and financing (most banks won't touch these medallions!) a medallion at a ridiculous interest rate to a driver that planned to use it as his retirement savings (an extremely volatile asset and not very liquid). Sure back then the dispatch only took a 15-20% cut, but medallion payments took at least a 50% cut on every ride. That money didn't get re-invested or re-distributed as incentives to drivers, no. It went straight to the pockets of the local rent-seeker.
The more I spoke to cab drivers the more it seemed their industry was a pyramid scheme aimed at helping established rent-seeker take advantage of often poor new immigrants. Uber/Lyft brought a breeze of fresh air: Someone could simply buy a car, calculate the depreciation and it's value on the market (since unlike medallions cars are relatively liquid assets!) do rideshare and calculate their profits or loss. They can get out of the game at anytime, and they know exactly how much they are going to get for the car they have should they sell it.
And I'm not even touching the usual pain points and often discriminatory practices of medallion drivers (refusing card payments, refusing rides to non-white passengers and to non-white neighborhoods...).
This really doesn't follow from your position.
Taxi operators are significantly more efficient because they are able to pool their leases together and are able to insure themselves as a group. Relying on individuals to do both leaves economies of scale on the table.
There's no reason that taxi dispatchers can't use better scheduling systems - however, the fundamental premise of Lyft and Uber is that they cannot ever recognize the efficiencies of scale in the underlying business. The cost basis of a Lyft or Uber ride is fundamentally higher than that of a taxi.
What has changed recently though is the markets and investors have stopped pouring money into rider subsidies and the price of Lyft and Uber rides is starting to approach the actual cost. That cost is often significantly higher than incumbents. The prices you saw over the last few years weren't operational efficiencies, just subsidies that taxis couldn't match because they have to actually recover their costs at the farebox instead of on Sand Hill Road.
> After all, the very first sentence on Wikipedia makes it clear all the things it's trying to do at once, of which ride-hailing is one of many [1]:
They're all terrible businesses. Food delivery couldn't even make money during COVID lockdowns when nobody went outside to eat and spent like a year and a half just ordering off Doordash.
Now they're trying to get into the grocery business and offering 50% off that. I paid $30 for groceries, delivered in hand, and the receipt showed the Uber Eats driver paid $50 for them.
I'd really recommend Naked Capitalism's 'can Uber ever deliver' series that's as true now as it was when they started writing it in 2016. [1]
[1] https://www.nakedcapitalism.com/2016/11/can-uber-ever-delive...
Back when I drove cabs the company owned the car and was responsible for all maintenance and insurance requirements. I just had to put in gas and if it broke down they’d send out a tow truck and give me another car. It was more expensive this way but once I got the lease + gas paid I kept everything I made. Some days I’d have the car paid off in the first couple trips and some days I ended up working for free but I always ended up making enough to pay my rent and eat.
I have to take Lyft whenever I’m in Phoenix because they destroyed the taxi industry there and I have a pretty good general idea how much it costs to get places in a cab and Lyft is currently charging as much if not more than the cabs charged while giving the drivers a smaller slice of the pie. Last time I went to visit my parents Lyft charged me ~$50 while giving the driver (IIRC) $18 plus a whole $0.50 gas surcharge for a 23 mile trip. In a cab it probably would have cost $56 (I’m really good at estimating it turned out) which would have all gone to the driver to do with what the will. Beginning of the shift that’s half their lease, end of shift it’d be all profit.
The last company I drove for the owner was really good to the drivers and would do things like adjust the lease price depending on the market conditions and he had no problems turning a profit up until Covid hit.
In my city taxi related regulations included:
* a police unit dedicated to "hackney" matters and a hotline to call for everything from reporting dangerous driving, dirty/poor-repair vehicles to lost item reports, and police actually followed up on most of these, and had the authority to pull a vehicle from service
* mandated minimum number of paratransit vehicles, ie wheelchair vans
* prohibitions on declining rides based on the destination or pickup area
* submitting drivers to a criminal background check by police. Go lurk in the uber/lyft forums and do some searches and you'll see drivers bragging about sailing past the corporate-run background checks even with violent felonies.
* random inspections by police
* standards for being in-service
* actual wheels-rolled-this-far metering by a device certified with visible-to-customer seal, not GPS which isn't nearly as accurate especially in dense areas with tall buildings where you get multipath errors and very limited constellation visibility...and almost entirely an uninspectable software black-box even ignoring issues with high density areas. Lyft and Uber could be inflating their mileage by a couple percent whenever they feel like it and nobody would be able to tell.
* receipts on the spot listing vehicle, driver, distance, fare.
Live in a known bad neighborhood? Good luck getting an Uber/Lyft to pick you up.
Need a wheelchair van? Good luck, Uber/Lyft didn't have any for years and it took lawsuits by states and cities. Drivers describe seeing someone come out their door on crutches and driving off because they don't want the "liability" (really, they don't want to wait for someone slow.)
See an Uber driver driving dangerously? Nobody gives a damn, and good luck getting the plate versus a large, high contrast 3-4 digit number posted on every corner of the car. You cannot reach anyone at Uber or Lyft unless you had a ride booked; the apps trigger an outbound call from their call center, but only if you had a booked right and answer the questions the app asks you correctly.
The companies and the executives responsible are criminal should be treated as such. The companies should be destroyed and the executives imprisoned. Any early investors/VC funds that provably knew the illegality of the company's actions should suffer the same fate.
Uber's criminal activity is frankly less excusable. A group of wealthy individuals have been allowed to intentionally and openly break numerous laws and pervert the course of justice in their early attempts to avoid being caught. Frankly, this type of consciously anti-social behaviour for personal gain is the kind that most requires punishment and rehabilitation.
Only at extremely peak times.
On the other hand I could actually book a car and have it show up at a pre-arranged time. Availability during the day was much better and after bars close it's almost impossible to find a car now. Prices were much lower. The drivers were much more skilled.
Uber/Lyft are the perfect examples of how much damage VC backed US startups can cause to a functioning market. To the point that if China style restrictions on the operation of US companies in my country were proposed I'd most likely vote in support of them.
Card payment was sometimes contentious. It was generally polite to ask to stop at an ATM on the way to the destination but if it was the only option they'd rather get paid. Now most companies allow you to pay for the fare via their own app which I assume is a licensed white-label or managed service.
The quality of the drivers was better. Uber/Lyft drivers often don't know where they're going and have left me feeling more uncomfortable/unsafe both personally and in terms of driving.
Service is still generally good although overall poorer than it used to be due to the effect Uber has had on the market. Previously there was fairly healthy competition between a decent number of companies, most of which have now merged. I don't believe that would have happened without the external pressure.
> Maybe it was just where I was, but the industry was a government-enforced oligopoly begging for disruption.
The disruption was a $30bn charade though. Would these companies have succeeded if they actually had to make any money? I'm actually quite not sure how to deal with the concept of a company that's lost that much money and still doesn't seem to be close to being profitable. I do believe companies and their executives should be punished harshly for acting criminally though.
I don’t think it was a charade. When I say that it was a government-enforced monopoly, I mean this quite literally: there were a limited number of medallions, generally owned by private investors (although they like to pretend they are owned by independent drivers). Uber/Lyft/others have problems, but at least their existence democratized the supply-side. Even if they have failed to make a profit (partly because of aggressive competition to win the market), I don’t think the public as a whole is willing to go back to the monopoly.
When something is disrupted, it doesn’t always mean the disrupters will win or even stick around. Sometimes that’s not the part that matters.
> When something is disrupted, it doesn’t always mean the disrupters will win or even stick around. Sometimes that’s not the part that matters.
I thought it was fairly commonly accepted that ends don't justify the means. How a goal is achieved absolutely matters. My local taxi companies were already providing app based booking, payment, and tracking. Uber came in, burned a shitload of cash and ultimately harmed society by doing so. Now prices are higher than the small companies they buried with VC money, yet they're still burning ungodly amounts of money.
Personally, I don't think that type of "disruption" is of net benefit to anyone other than early investors. The destabilisation of the market sector and eventual deterioration in quality of service cause far harm to customers/society in the long run.
Replacing existing services with a massively unprofitable and yet more expensive alternative doesn't exactly strike me as a net positive. That's before we even begin to consider the ethical concerns raised by the criminal activities of the company and it's executives.
I've waited similar times for an Uber or Lyft.
We've also seen the central conceit of "you're the product" in the sense of some next wave behind the scenes user/consumer data market be exposed for literally just ads, same as it ever was.
> But not every company works like Google.
This. You don't need a lot of high-priced technical talent to run Lyft. "Frugal" should be the watchword.
I just took a Lyft to the Everett airport near Seattle. There are three big things that made me use Lyft and not have the hotel call me a taxi, and I suspect it's these and not ride-sharing that make Uber/Lyft popular.
1) I could book it myself through my phone and give it the destination.
2) The driver already knew where we were going. I didn't have to tell him.
3) It was already paid for and I didn't have to interact with the driver there, either.
Timothy's thought experiment is worth carrying out. Most of these are just straight-up customer service things that taxi companies could do if they really cared (and if the government let them). Some of them they already do: the hotel would have told the taxi driver I was going to the airport.
I suspect this because I can’t see how Lyft could ever be competitive in the market if it is taking a far larger chunk: either they’re drastically underpaying drivers or overcharging customers compared to Uber. Why would either group endure that?
All of this to say from a single perspective that it does appear that Lyft is charging more. It also suggests why I so infrequently use Lyft because I'm not paying $100 to go <20 miles. So maybe I'm not enduring it like you say. There are times where I definitely choose to not go somewhere based on price alone.
By definition, no, they are a public company.
Because they destroyed the cab industry and hunger is a powerful motivator?
You have one group of people who want to go somewhere and another group who own a vehicle and need money for whatever reason, match made in heaven—assuming you ignore the fact that most of the cost of the ride is basically coming out of the equity of the vehicle.
I enjoyed the depiction of the retro Lyft operating in the old taxi model. I agree that would probably be more efficient. These companies, like most tech, relied on extremely lax regulation, super low interest rates, QE, and dumb VCs to produce a myth of greater efficiency. It was enough to undermine an entire industry. And to think driving a taxi used to be a middle class job in some places. No wonder so many medallion owners committed suicide.
https://us.macmillan.com/books/9780374538651/subprimeattenti...
I don't get that question much today.
If any such prospective co-ops need a developer, hit me up.
Sadly they aren't hiring for devs... https://drivers.coop/jobs
I really hope they'll consider FOSSing the code and expanding the co-op nationally.
It's the only way the business makes sense, but I know quite a few drivers doing it full-time and they enjoy it. Set your hours to work around family, school, etc.
since the riders are the ones paying for the service, it may be more impactful to make an app designed for them, which then plugs into the independant smaller networks of drivers seamlessly. then I can fly into Hamburg and just tell whichever service is operating in that city that I'm around and need a ride.
maybe even let them compete for the best fare...
My understanding is that Uber already does that, though I don't know how big is the scale. There are cities where Uber operates only through a bunch of intermediaries (essentially taxi mini-companies). A driver cannot signup with Uber directly, they have to go to one of these companies.
There's also chicken & egg problem: no-one is going to use your app if it only has 5 drivers, and other drivers won't join your app if nobody uses it. Again, you'll need a lot of money to gain momentum in just a single city. It will be hard to get those funds from VCs, since your business model is less lucrative.
Not a lot of data points
That doesn’t mean a traditional taxi dispatcher can survive in the modern world. Riders would not support a traditional taxi dispatch when they have the option to use a Lyft/Uber style of ride; it is way more convenient for the rider to use an app than a traditional taxi service.
Pre-Uber and Lyft, maybe a taxi service had better margins. That is no longer the case in this new market.
It doesn’t matter how efficient your business model is if customers don’t want to use your service.
The VC money has let these companies escape gravity for this long but it likely won't last forever.
There is an alternate universe where every Uber ride always has 4 folks and traffic has reduced, instead of a ton more idling cars milling around and then driving single passengers all the way across town.
When Lyft and uber first launched, passengers and drivers were raping, murdering, and robbing each other. Both companies quickly added safety controls to ban repeat offenders and keep everyone safe on the platform.
With a phone call model, you can’t effectively police the passengers.
At least there is a process, unlike bad cab drivers.
> Uber and Lyft Drivers Are Being Carjacked and Thieves Are Then Robbing Passengers They Pick Up
[in Baltimore, where I live]
https://sfist.com/2022/12/02/uber-drivers-are-being-carjacke...
Also, the selfie verification reduces crime b/c criminals are less comfortable to commit a crime once the app has their image.
It's not a perfect system, but as a driver, I would trust it more than no system that taxi companies have.
If your engineers can't make you a profit, perhaps said engineers shouldn't be paid that much.
At decent places with a profitable business model the workers tend to generate many times their salary expenses.
Meanwhile, as a senior in a private org, I’m being forced into tech-adjacent roles because there’s no one else competent enough to do the administrative and operational duties required to support the growing volume of work. I hear different, but just as bad, tales from startups. Look, I love what I do. I’d probably work for less if it made sense, but you make it sound like I’m somehow the one holding out for more when the recruiters are the ones who won’t leave me alone, and no one is lining up to make my role or responsibilities any easier, so I’ve gotta admit this is a pretty rich take.
I'm just saying that the real reason for the chronic underprofitability of startups that emerged in the last decade is high employee costs. The people in charge will have to rationalize that sooner or later.
As an employee, of course you're not responsible; the decision makers - suits and VCs - are. You should obviously make the most of these good times.