The bullish case for ride-sharing services

In a survey by AARP last year, only 29 percent of those over 50 had used ride-hailing apps. Two-thirds said they weren’t likely to do so in the coming year, citing in part concerns about safety and privacy.

I don’t think today’s young will lose the capacity to use ride-sharing services as they age.  In the meantime, there is this:

So Lyft and Uber and others are contracting with third parties, bypassing the need for older riders to use apps or to have smartphones at all.

They’re joining forces with health care systems, for instance. In the past 18 months, more than 1,000 — including MedStar, in the Washington area, and the Boston Medical Center — have signed on with Uber Health for “nonemergency medical transportation,” the company said.

Case managers and social workers can use Uber or Lyft to ferry patients to or from clinics and offices, reducing missed appointments.

Here is the full NYT story by Paula Span.

Comments

Do either Lyft or Uber offer ambulance or hearse services yet?

It would probably be an order of magnitude cheaper. So clearly illegal. I'm sure there's a law in most states saying only an appropriately "licensed" company can drive hearses. Otherwise the passengers could be subject to some unexpected danger.

What is a ride sharing app???

Senior citizens do offer a good opportunity to ride sharing services. But is this enough to reverse the terrible losses that Uber / Lyft are making? I doubt it.

We lose money on every ride. We make up for it in volume?

I don't follow them that closely. Do they actually price below marginal cost? Or just below average cost?

As far as I can tell in major cities each incremental ride generates a positive gross margin (after paying the driver), but the TNC companies have massive overheads as they pay the scientists and the executives and the coders, etc. Local taxi companies have overhead consisting mostly of a cranky dispatcher on a phone, and a crappy garage somewhere (remember the old show Taxi?). So on average cost, loss; marginal ride, profit, if all overheads (which are MASSIVE) are ignored. IMHO.

> Local taxi companies have overhead consisting mostly of a cranky dispatcher on a phone,

So, you don't buy the "software will eat the world" argument? The cranky (and mistake-prone) dispatcher probably is the apps' major cost saving point.

I am not making some broader point about software eating the world. Only that a Cranky Dispatcher with a phone setup probably costs less per ride than all the high-paid programmers and developers running around trying to get autonomous vehicles working for Uber. The R&D function at a small taxi company probably consists entirely of driving past a rival's lot to see if they have new ads on the roof. Uber and Lyft may eventually destroy incumbent taxi companies, but it won't be because the incumbent taxi companies aren't running lean and mean in the overhead department. No broader point did I mean to make.

They price below fixed costs.

Ie, prices paid the capitalists who do all the transportation services are less than the cost of capital once the capitalists pay the variable costs: gax, tires, $3 an hour labor cost. To attract capitalists, both pay huge bonuses to entice capitalists to sign up as "drivers" because they need lots of working capital under contract without owning it: vehicles to move people and stuff.

Does anyone think Uber will suddenly start buying and owning millions of vehicles when they can "drive themselves"? If yes, why doesn't Uber standardize on vehicles, buy them in high volume, and then hire workers to clean, maintain, and drive them?

Does anyone believe economies of scale comes from eliminating division of labor of labor, buying in small quantities, duplicating all business management costs, etc? Why not Uberize steel making by eliminating steel mills and hiring a million blacksmiths? Hey, coders can spend evenings and weekends making steel in a backyard forge instead of going to a gym for pointless physical labor.

My sons seriously disagree.

I don't see how Lyft or Ubre are preferable to my local/village cab company, which picks me up five minutes after I call.

With Lyft/Uber's overhead, they can't possibly do it cheaper. No, wait! The business model is to put every other cab company out of business then raise the prices.

"I see!" said the blind man.

Compare to New Haven, where the local cab company picks you up thirty minutes after you call. The local cab companies also populate the city board that decides if there is sufficient demand to authorize new taxi companies.

Have you ridden in a cab in a major metro area?! The rate card is just as bad as a cable company bill. Extra passenger, ding. Bag, ding. Cross a county line, ding. Odd hour, ding.

And what happens when Uber and Lyft go bankrupt and disappear, as inevitably happens to firms that run gigantic losses and have no viable strategy for achieving profitability?

Somebody comes along and picks up the pieces, and Uber and Lyft continue as brand names where they are already established. It's not as though there's no demand -- it's just a low margin business masquerading as a high margin investment. Ride sharing, probably at somewhat higher prices, will remain with us. It just has to remain better than traditional taxis to survive, and that's not a stretch.

+1, this isn't Yahoo, Uber and Lyft provide a valuable service.

They'll stick around, though probably under new owners.

But the main value has been cheaper rides compared to traditional taxis - IF that turns out just because they've been pricing under marginal costs then its not a sustainable business and no one is going to come and pick up the pieces.

There's a customer base, a set of drivers, and effective software. More than anything, there's a brand. "Uber" is a verb, not just a company name. That's all worth buying.

Why though? If the whole model ends up proving unprofitable then what's that all worth?
I find discussions about these companies to be unhinged.
People talk about Lyft and Uber as though these are very profitable companies but they aren't. Maybe it turns around and this is a very long run thing, but on the other hand how hard is it to "beat" all the other cab companies when investors hand you tens of billions of dollars to burn?

Price isn't the offer. Convenience is. The app is way more convenient than Taxis.

They didn't even use to try to compete hard on price (even on UberX, it used to be all college kids in Priuses).

They are betting that self driving cars eventually replace their drivers. Then they will be getting paid to have a fleet of robots.

Well self-driving cars remain to be seen. I just don't see too much long-term value in an app, seems like that is pretty easy to copy. They were among the first but in the long run - hell Self-driving cars would almost do even more to erode whatever competitive advantage because how hard would it be for someone else to buy a fleet of cars and make an app?

How hard is it to make another Facebook?

Entrenched network effects are a bitch to overcome.

How is there a network effect for Uber though?

Yep. If say Ford (or Amazon) introduced a fleet of reliable self-drive cars with a new app, I'd say the protective network effect for Uber would be close to zero. Last week you used Uber, this week you use PrimeCar. You don't care if your friends use old Uber or new PrimeCar.

There is no network effect.

+1, there's not much of a network effect to Uber.

I do feel the original poster was confusing "network effect" with "brand/name recognition" two different things.
Right now Uber does have somewhat of a network effect because the more Uber customers there are, drivers will have even more of an incentive to drive for Uber. A small, new ride-sharing service might have trouble convincing drivers to drive for them because there would be far fewer customers. Of course since Uber has more drivers this attracts more customers because its quicker to get rides with Uber since it has more drivers and you have the feedback network effect.
Of course its not THAT strong since drivers can drive for multiple firms - it doesn't cost too much to have multiple apps going.
If self-driving cars come around this disappears completely since anyone could enter the market with a sufficiently large fleet of cars. Then you basically just have taxi companies and the small advantage Uber did have due to its weak network effects are destroyed. All that is left is "name recognition" which isn't worth a hell of a lot these days.

Ironically rather than save Uber the self-driving car might be the nail in its coffin.

asdf is correct, ride-sharing is betting on self driving cars for profitability. I award 5 internet points.

Could be Amazon that picks up the pieces. They know how to do low-margin.

There's no reason to have ride coordinating and trusted 3rd party functions in the same vertical, and this causes huge duplication in the administrative costs for each 'gig economy' company. Eventually trusted 3rd parties will start validating identity and ratings on some form of blockchain; unhackable and public. Then ride coordination can be distributed across any numbers of apps based on the same publicly available data. Maybe a Lyft or uber can continue to offer some value-add, but they wouldn't be the hud or clearinghouse of the market anymore, so it wouldn't really matter if they stuck around or not.

If you agree with me go to Joe 30303030

... so what's the Bearish case for ride-sharing services ?

must be some objective analyses of this stuff out there somewhere

See my comment below. I am not sure I am BEARISH on ridehail, as much as NEUTRAL. It provides a great additional transportation option, but I am not sure that incumbent options just roll over and die...

Isn't the issue that they're pricing below cost, subsidized by investors? The issue then is not attracting more customers, but convincing customers to pay more money.

Were they hoping to put the competition out of business first and then raise prices above cost?

I think ridehail (it ain't rideshare as long as you are just one passenger "sharing" the car with the driver) has enormous upside for the elderly. But I take some issue with the opinion that "today's young" will continue their high use of ridehail. For one thing, ridehail prices must rise as the VC subsidies run out. (Note that ridehail in NYC has lost any price advantage over taxis already; go to rideguru and plug in any Manhattan trip you choose to compare prices: 1 Wall St to 100 Central Park West for example is $34 for UberX and $34 for a taxi.) And note that ridehail use in Manhattan has grown precisely not at all over the last year, with growth rates falling in the outer boroughs. And Deloitte's global ridehail survey shows a decline in frequent users of ridehail in every country surveyed. Several things are happening: the fad element is waning, ridehail driver and car quality seems to be eroding as we move from grad-student-moonlighting-with-Dad's-car to low-income-driver-buys-car-to-drive-ridehail-18-hours-er-day; scooters and bikes step up; and regulators level the playing field between ridehail and taxi. Thus over the course of the last year Uber's ridehail revenues have not grown at all. A new equilibrium is being established, where ridehail and taxis just merge together into a sort of upgraded taxi model. Will usage then slip back? It very well might, as cities get tired of the congestion. I flew into SFO lately: the taxi was right at the curb, the Ubers stashed in a parking garage across the way...

"But I take some issue with the opinion that "today's young" will continue their high use of ridehail. "

I agree, but mostly because today's young will eventually marry, have kids, move to suburbs, drive their own cars, and stop needing rides home from the bar at 2AM.

"It ain't rideshare as long as you are just one passenger 'sharing' the car with the driver"

As I'm sure you know, Uber does allow a ride-sharing option, though the savings relative to getting your own car for the trip are not great (maybe 20%?) and it necessarily increases travel time.

You are absolutely correct, yes, they do offer a true ride-sharing option. And in some markets that option offers another option, of having pre-set stops along the way. Uber has invented... the bus! (grin)

What you're sharing in the 'sharing economy' isn't the service, but the capital assets. I always get the airbnb to myself, that's not the value proposition. Not having to buy a whole house wherever I travel is the value proposition. 'Sharing' can be in serial as well as parallel, and it's not a new concept, see: 'time-share condos' for a well established pre-internet example.

What you're sharing in the 'sharing economy' isn't the service, but the capital assets. I always get the airbnb to myself, that's not the value proposition. Not having to buy a whole house wherever I travel is the value proposition.

An idea that makes much less sense for autos (that depreciate based on miles/usage) than for vacation rentals (that don't). You never had to buy the whole car to take a cab either. Also, the labor cost is a MUCH bigger factor for ride-sharing than house-sharing. All of which is probably explains why house-sharing companies have been consistently profitable while ride-sharing companies continue to hemorrhage cash.

Yes, it would be fair to say that Uber and Lyft, whatever the final financial outcome for the companies, have redefined the taxi business by demonstrating what a 21st century taxi company has to be capable of to satisfy market demand. The taxi industry is adjusting to meet demand. Uber and Lyft will adjust in turn; creative destruction and all that Shumpeter stuff.

Not to mention Schumpeter stuff, too!

meanwhile,
meme zombies at the washingtonpost.com have conflated
"fraught fraught" with "interest"
its free and it comes with a fake chart

https://www.washingtonpost.com/politics/2019/08/21/it-takes-about-three-weeks-americans-stop-paying-attention-after-mass-shooting/?noredirect=on&wpisrc=nl_rainbow&wpmm=1

I think that is the communist impersonator trying to divert attention away from Red China's assault on America.

"I don’t think today’s young will lose the capacity to use ride-sharing services as they age."

But they in turn will never get comfortable with teleportation and laser-guided interplanetary synaptic transfer.

Sounds like one of them good problems.

I understood the problem with them was not that they didn't have enough customers but they basically price below cost so they lose money on their customers, and they don't even make money in their established markets.
I don't know the issue thoroughly but that was my understanding of it - like expanding into all these businesses isn't going to help because they aren't profitable at current prices.

Cowen prefers Uber and Lyft to public transit, which makes this post rather ironic since what Uber and Lyft are doing is tapping public welfare programs for revenues. I appreciate that Uber is willing to lose billions so I have an inexpensive a convenient ride. Tech works best when the customers are the product (Google, Facebook). Uber just needs to figure out how to make the customers the product. In the case of Google's autonomous car project, they are working on turning the windows into billboards and delivering their customers (i.e., the product) to preferred destinations (i.e., those who pay Google for the delivery). Why can't Uber deliver their customers (product) to preferred destinations. In the good old days of cabs, out of town visitors could rely on cab drivers for referrals for a good time; I don't know the cab drivers' cut for the good time, but it must have helped with the rent. Why can't Uber drivers help out of town visitors find good time? Turning customers into products, that's what tech knows.

People use the Internet to discover where they can find their own highly personal definition of a good time. They don't need Uber for anything other than getting there.

Insightful as always, ray.

Yes, people need to distinguish A from B. Lyft exists in a compartment. Most Uber drivers are older than 40. Ride-sharing is not heralded, it's a by-product.

The thing I don't understand about Uber is why they continue lose loads of money (Looks like average $1B per year since 2013.) I know Uber service has a place in the economy but I don't ever see how it becomes a billion profit company in the future.

1) The 2 big early wins were breaking up local taxi control and using a mobile devise to hail a taxi. Local control is now limited and it seems the hailing taxi apps should not be that hard to sell.

2) It is not like Uber drivers make a bunch of money and most drivers are looking for careers here. They make a decent pay and flexible work schedules is great but I suspect most drivers pay a lot more for car fuel and maintenance they calculate.

3) Local taxi companies do have cost advantages over personal drivers and probably can save 5 - 10% per vehicle cost per mile. A taxi service probably can save 20% on tires and maintenance, 5% on vehicle cost of fuel and car price.

4) Why have local taxi services able to buy hailing taxi apps. Seems fairly basic to do so.

Lots of taxi companies have apps now, but few taxi companies are nationwide, let alone international. There are adds for many taxi apps in every airport now. But I don't want to research taxi companies in every city I land in, download a new app, register a new account, yada yada...

There is also a decent chance Uber or Lyft is licensing software to the local companies.

@Collin I think their other big win was a better way to solve the trust/safety problem inherent in jumping into a strange car in a distant city.

Taxi licensing is notoriously spotty e.g., India taxis have meters, but (apparently) none were in working order during my last trip to India.

I just assumed all taxi trips in India were pre-negotiated. I wouldn't dare receive any service of any sort in that country without firmly establishing the exchange prior to consumption of service.

Ironically, the worse scams for me were the pre-negotiated rides. The driver always demanded more because they got lost, traffic was bad, or other $Reason.

Re the meters, I was there long enough to know what the trips should cost. I'd give the few honest drivers a 200% tip (~$2), the dishonest drivers got their price and no more.

“So Lyft and Uber and others are contracting with third parties, bypassing the need for older riders to use apps or to have smartphones at all.”

This is already there for a year now in India. Ola and Uber have their kiosks at airports, railway stations, bus terminals in big cities where you can walk up to them and get a human attendant to hail a cab for you for no extra charge. The person will use his smartphone to book one for you. Very useful for someone new to the city and may not have network coverage, data connectivity or simply doesn’t want to subscribe/install the app.

Without knowing what percentage of olds use traditional taxi services, I don't know that this data point tells us anything.

As a Brazilian, I stand with our American friends in opposing Red China. President Jair Bolsonaro is fighting for all of the West against the CXommunist menace. Brazil invented the airplane and was praised by famous American President Franklin Delano Roosevelt as essential to defeating Nazi Germany. We can stand together against the Red Chinese but we must act quickly! Ordem e progresso!

Exactly! You understand.

I know! We Brazilians are known for our intellect. Famous scientists have shown that the Brazilian brain is 20-25% larger than other humans. Together we will defest the godless Chinese!

The survey: " Surveyed online and by telephone in March and April of 2018, the total sample of 2,287 adults included a nationally representative sample of adults age 18+ (1,947), with multicultural oversamples of African American/Blacks (470 total), Hispanic/Latinos (439 total) and LGBT (409 total)."

OK, you sample about 2000 at 18+ with how many 50+ individuals then out of that small sample size the vast majority is Black, Hispanic and LGBT which won't give you a large enough sample size to say anything valid about older Americans. Sounds like nonsense studies (clickbait) to me and doesn't correspond to my observations.

As a 79-year-old American who probably knows more 50+ citizens than are represented in this study, I can say that their study is probably just nonsense. It is an age group that is looking forward to self-driving cars as the eye tests from the DMV become more difficult and reaction times slower. Even the semi-autmation of auto-pilots capability is a big help in covering the blind spots and slow reflexes and new car purchases are based upon those capabilities as much as other features.

We are also old enough to realize it is not in the self-interest of many existing groups and regulators to allow autonomous vehicle to evolve and blocks will created forcing us to keep a "hand on the wheel" while we day-dream away.

Of course, we ask our kids about which cars have the best software/hardware and whether they like UBER or LIft. They know more details than we do.

+1, good catch. The survey numbers look questionable.

I do not know if Uber and company will stay in this business, but we have been using all manner of services for years to get patients out of the hospitals and back home. If you just sit on a cot in my ED you may well be costing the hospital hundreds of dollars an hour. Getting a well (enough) patient home when there is nothing more to do acutely is very cost effective. Getting a taxi to come to the hospital takes time and the taxi company is normally terrible at managing liability. Uber offers an easy way to get the patient somewhere and free up resources for productive use.

In general, I suspect that ride sharing will function a bit like golf carts. They may be ineffective. People may prefer many other options. But for some seniors it will be a lifeline that buys a few more years of independence. Eventually some retirement community will go full Myrtle Beach and start planning infrastructure on a bunch of seniors that cannot drive, cannot or will not navigate buses, and want more range than golf carts.

Comments for this post are closed