The Austin Ride-Hail Chronicles: Game Over for RideAustin?
Last week RideAustin’s two most senior executives — CEO Andy Tryba and COO Marisa Goldenberg — published a Medium piece detailing “what they learned” during the first week following Uber’s and Lyft’s return to the Austin market, given that their ride volume immediately fell by 55 percent. Yesterday Tryba stated that RideAustin’s trip volume declined an additional 16 percent the subsequent week, and in response RideAustin would be immediately lowering its (already-low) rates to price-match Uber and Lyft. Like Tryba and Goldenberg, I was surprised by this course of events … except my own surprise wasn’t related to Uber and Lyft’s swift market-share recapture, but rather on RideAustin’s failure to anticipate this eventuality. I could’ve told them a year ago that Uber and Lyft would be back. (Okay, actually I did tell folks a year ago that they’d be back.) In plain and unambiguous terms, RideAustin misread the Austin market — badly — in myriad ways, and as a direct result, the company now faces an existential threat to its continued viability.
Over the past couple of weeks, I’ve been working on an extended-length analysis of how Uber and Lyft (U/L) miscalculated their strategy for last year’s Proposition 1 ballot referendum from the get-go. A considerable chunk of my in-the-works article focuses on their respective failures in developing an understanding of the rather unique dynamics of the Austin marketplace, including both its politics and populace. To my surprise, RideAustin’s Medium piece illustrated that it has a nearly identical problem, as did the company’s decision this week to initiate the “race to the bottom” long feared by local ride-hail drivers. (Lower rates, of course, ultimately translate into reduced driver earnings, which has long been one of the most salient criticisms lodged against both Uber and Lyft — not to mention their (arguably) largest Achilles heel.)
Here’s my take on the primary misreads RideAustin has made regarding both Austinites and the city’s transportation network company (TNC) marketplace — many of which also apply to its local nemesis, Fasten:
1. Last spring’s Proposition 1 results reflected discord among Austin voters generally, but not TNC users specifically
At this juncture, there’s near-universal agreement — on both sides — that Prop 1 failed because Uber and Lyft executed one of the most ham-handed municipal referendum campaigns in recent U.S. history. Ever since then, however, it’s been an open question whether the results reflected the sentiments among Austin voters generally, or its TNC user base specifically. (Note that only a minority of Austinites — as well as Americans on whole — have ever used a ride-hail service.) While RideAustin and city leaders have long maintained the former proposition is true, RideAustin’s experience over the past two weeks strongly supports the latter one. They even said as much in their Medium piece: “Despite local ‘anger’ on how Uber/Lyft left the city previously or the troubles Uber has internally — that didn’t seem to matter a whole lot.”
RideAustin’s misread in this context was its assumption that the small percentage of Austinites who voted against Prop 1 — roughly 9.5 percent of its total number of registered voters — represented some sort of broader “mandate” indicative of Austinites on whole supporting the city council’s (now-obsolete) TNC ordinance mandating that all prospective drivers undergo fingerprint-based background checks. Clearly, it did not — and certainly not with respect to regular TNC users: the huge percentage of Austin folks who immediately returned to using U/L is unambiguous proof of it, considering anyone riding with U/L has no idea one way or the other if their driver has ever undergone a print-based background check. While I admittedly had a hunch this was the case, these stats are the first concrete proof supporting the hypothesis.
Finally, I think a response is merited for this bit from RideAustin’s Medium piece:
Overall — we have to give credit to where credit is due. The Silicon Valley giants have been able to come back into a market they abandoned with very little effort. This goes to their strengths and the Austin community’s willingness to overlook their corporate flaws and past history.
I’d suggest a rather different take on what transpired. Many or most Austinites likely didn’t think U/L “abandoned” the market; rather, they decided both were driven out by an inflexible, unyielding city council which forced a ballot referendum that never should’ve transpired in the first place. (As a reminder, Austin Mayor Steve Adler successfully negotiated a compromise on the fingerprinting mandate with both Uber and Lyft that would’ve prevented the referendum from taking place, but the city council essentially refused to even consider it.)
Further, most of Austin’s TNC users apparently either don’t care about U/L’s “corporate flaws” — or realize, correctly, that nearly all of said flaws are Uber’s, not Lyft’s — and/or have no issues of note with their “past history.” (NB: Speaking of which, this is an interesting point for RideAustin to bring up, considering its co-founder Joe Liemandt funded the majority of an attempted recall campaign for Austin City Council Member Ann Kitchen — the most outspoken Council opponent of Uber and Lyft — less than six months earlier.) Finally, many or most Austinites may have been skeptical of the Council’s TNC ordinance revisions from the beginning, considering (among other things) the fact that the local taxi industry has been funding the campaigns of various CMs, including Kitchen’s, for years, as well as the reality that nearly every other American city where Uber and/or Lyft operate (now 300+) has managed just fine with the electronic background checks both companies perform on all driver applicants.
2. The real reason Austinites are abandoning local TNCs
RideAustin noted in its article that “[t]he first and largest set of riders we believe we lost immediately are the super-price sensitive folks.” This is most likely false — with respect to RideAustin vis-a-vis Uber and Lyft, that is, but not between Austin’s startup TNCs. I certainly understand why RideAustin made this assumption: it leapt to the top of the local TNC market last fall after it controversially cut its rates to 99 cents per mile. I’ve already pointed out the irony of RideAustin initiating a move straight out of Uber’s playbook — particularly since it essentially capped its competition in the knees, and was the likely reason most of Austin’s less-established startup TNCs quickly disappeared from the market — but it certainly succeeded.
The problem? This was true when RideAustin only had Fasten et al to worry about, but not with U/L, and for a reason I’m pretty sure RideAustin’s leaders will either dislike or flat-out dispute: Austin TNC users are willing to pay a premium to use Uber or Lyft instead of a local startup. I’ve been comparing / contrasting prices for U/L versus the locals during typical surge-pricing periods for the past two weeks (on weekend nights; early mornings; and following events like Blues on the Green), and the reality of the situation now seems very clear: local TNC customers are not only willing to pay more to use Uber or Lyft; they’re paying oftentimes huge premiums to do so, regardless of any short-term discounting in effect.
The image at left consists of two smartphone screen captures — taken almost simultaneously on the first Friday night following U/L’s return, shortly after Austin’s 2am “last call” — of Fasten’s “boost” multiples versus Lyft’s “prime time” prices throughout the downtown Austin vicinity, both of which are largely identical to Uber’s surge pricing and based on real-time demand. (Both screencaps came from the TNCs’ driver-facing applications, which passengers cannot see.) Friday and Saturday nights between 1am and 4am are typically one of the highest-demand periods of any given week for TNCs (and more typically the highest-demand one), particularly in Austin given its unusually large number of nightlife enthusiasts. In downtown Austin’s “core” nightlife area — roughly bounded by N. Lamar Blvd. to the west, I-35 to the east, 11th St. to the north, and Lady Bird Lake to the south — Fasten’s prices were only slightly higher than normal, with boost multiples between 1.1x and 1.4x. Lyft’s prices, however, were SEVEN TIMES HIGHER: the brightest-pink areas on the map depict the parts of downtown with a 350 percent price surcharge. (A Lyft Prime Time period at 25 percent means its rates are 25 percent higher than normal; in other words, a 1.25x multiple. Similarly, 100-percent Prime Time equates to a 2x multiple. And so on.) Further, they cover nearly the entirety of the nightlife core, along with its new-ish offshoot east of I-35.
To be clear, this wasn’t an anomaly. Not only have RideAustin and Fasten been experiencing exceptionally low surge multiples, rarely higher than 1.5x, U/L’s have simultaneously been through the roof. At one point Uber’s multiple was SIX TIMES higher than usual, at a time when the locals were below 1.5x. Further, none of this was the result of an unusually high amount of tourist traffic (a group RideAustin has already effectively written off — wisely); early June is one of the slower periods of the year in Austin.
Even outside of peak usage periods, RideAustin’s hypothesis that it mainly lost its “super-price sensitive folks” following U/L’s return simply doesn’t hold water. To be fair, Uber and Lyft have offered various short-term fare promotions, but as RideAustin itself noted, the incentives were “nothing terribly significant.” Also, I don’t doubt that some RideAustin drivers have received feedback of this nature from passengers, but at the same time it’s unlikely most passengers gave it (and RideAustin’s leadership may be experiencing confirmation bias about it as well). Meanwhile, the TNC with likely the biggest decline in traffic (Fasten) is the one offering the best ride incentive: $2 off the next 100 trips. (See footnote 1.)
Naturally, all of this data begs the question of why, exactly, RideAustin has experienced such a tremendous drop in business. The most likely answer is a surprisingly simple one (which the company appears to have missed in its entirety), and it goes directly to the heart of RideAustin’s misread of the TNC market: its leaders simply don’t understand that TNC users — both locally and nationally — value reliability and consistency above ALL else. THIS is why U/L customers flocked back to them immediately after their return to Austin. THIS is why those same customers readily pay a premium — oftentimes a sizable one — to get to their destination versus what they’d pay with a local TNC. (See footnote 2.) And THIS is arguably the local TNCs’ biggest collective failure: even to this day, the RideAustin and Fasten apps are both plagued with various bugs and prone to crash at the worst possible moments, most recently during SXSW’s highest-traffic night. Put simply, they’re nowhere near as reliable as the “Big Two”—or at least that’s what Austin TNC users have likely concluded. (See footnote 3.)
3. RideAustin’s core problem — and it’s not Uber or Lyft
RideAustin’s origin story is fairly well-known at this point, and it’s a laudable one: realizing Austin had a significant crisis on its hands in the aftermath of U/L’s abrupt exit from the market, prominent leaders of the city’s tech community rapidly came together to collectively devise a fix. Their efforts — coupled with their exceptionally generous no-strings-attached donations for the effort, which produced a first round of funding purportedly in the high-seven-figure range — resulted in the creation of the country’s first nonprofit TNC, one that has since provided millions of rides throughout the Austin area.
All of this effort has a rather significant problem, however, and it’s one RideAustin has had since shortly following its inception: as it turned out, Austin didn’t need RideAustin after all. When the idea for its inception came about, the Austin TNC market was in shambles, with only a couple of TNCs open for business and woefully overburdened with far too few drivers for far too many customers. At the very beginning, therefore, there certainly was a need for a new, well-funded TNC. The problem, however, is the reality of this situation being a short-lived one. Within six weeks after U/L’s departure — and before RideAustin’s app had even been completed — over a dozen fledgling TNCs were either up and running or well on their way to opening up shop.
After discovering Austin had a surprisingly large number of startups jumping into the TNC fray, however, RideAustin not only didn’t change course; it barreled full speed ahead, spending untold millions developing an iOS app (and later one for Android) that essentially replicated much of the Uber app’s design and functionality. Arguably even worse, once it was fully up and running RideAustin lowered its prices to such an extent that it undercut the startups’ rates by 50 percent or more. I realize the irony in what I’m about to say, but Uber and Lyft didn’t kill off most of Austin’s startup TNCs; RideAustin most likely did so on its own.
The company has a variety of other core-level problems as well. A significant one relates to RideAustin’s status as a nonprofit entity. As it so happens, two of my best friends have launched and run 501(c)(3) nonprofits, and a close confidant — I call her “Mom” — is the treasurer (and a board member) of Impact Austin, one of the largest women’s philanthropy groups in the nation. All three of them have expressed skepticism regarding RideAustin’s nonprofit status, for a variety of reasons. For starters — and I feel like this may be stating the obvious — nonprofits aren’t generally supposed to compete head-to-head with for-profit business entities. Indeed, the main point of a 501(c)(3) designation is to allow a nonprofit to serve a community to the fullest, minus concerns for the tax burdens applicable to traditional businesses. Impact Austin, for instance, awards five high-impact grants per year to other Austin-area nonprofits in the areas of culture, education, environment, family, and health & wellness. Its entire organization is focused on a nonprofit mission, as is the case for most nonprofits. RideAustin, clearly, is not. (See footnote 4.)
So what, then, is RideAustin providing the broader Austin community? Inexpensive rides, sure, but those are already available from for-profit businesses at roughly the same prices. Trip data? Definitely — and that’s arguably its most worthwhile contribution in a nonprofit capacity — but is its data-generation ability enough to qualify it as a nonprofit? Also, the company’s Round Up tool — which allows passengers to literally round up their final fare to the nearest dollar, with the excess amount donated to a charitable organization of the rider’s choice — has generated over $250,000 in donations to date, and it was a savvy-enough idea that Lyft ended up copying it for its own app. Unfortunately that’s also part of the problem: for-profit businesses have been offering similar means of donations for decades, ranging from the bell-ringing Salvation Army folks parked outside storefront doors during the holidays to the various $1-$3 coupons available at most H-E-B checkout counters for easy contributions to various charities.
To frame it another way, perhaps a better question is what RideAustin could be offering the Austin community instead of a duplicative TNC app, in terms of services more traditionally associated with nonprofit entities. This question is further amplified taking into account RideAustin’s own admission of the strong likelihood that U/L would ultimately return to Austin — an event that has created the very real possibility that it may have no choice but to close up shop for good.
Below are some examples of the types of services I’m talking about. For argument’s sake, I’m assuming the hypothetical that RideAustin was formed and founded but didn’t launch a TNC app, period, and thus had millions of dollars in donations at its disposal:
Full-fledged paratransit service
Both Austin’s public transit agency, as well as its various taxi companies, have broadly failed to provide adequate means of transportation for the city’s disabled community — a problem that’s persisted now for decades. While all TNCs (and all private transportation providers generally) are required under federal law to provide “reasonable accommodations” for meeting the needs of disabled passengers, this requirement doesn’t include offering rides with wheelchair ramp-equipped vehicles, at least not for TNCs. (The reason is a simple one: nearly all TNC drivers use their personal vehicles to provide rides, and mandating that any of them spend roughly $20,000 of their own money to install a full-fledged wheelchair-ramp setup — even assuming they have a vehicle suitable for it in the first place, e.g. a minivan — is clearly unreasonable.)
Assuming a purchase price of $50,000 for a “gently used” wheelchair ramp- equipped Toyota Sienna — arguably the most reliable and well-built minivan that can be modified for such a purpose — RideAustin could’ve easily purchased a dozen of them outright and still had ample funds to pay drivers to operate them on a part- or full-time basis.
Transportation for seniors
Like all cities, Austin has a sizable population of seniors who are no longer physically able to drive themselves around safely — but also not yet at a point of requiring nursing-home care — and a considerable portion of them don’t have family members nearby who can provide them rides on a regular basis for their quotidian needs: going to the grocery store, for instance, or picking up their prescriptions at the drug store. Many, if not most, seniors living on a fixed income have little choice but to call for taxis to transport them to and fro; indeed, this is one of the primary tasks taxi drivers perform on weekday mornings and afternoons. What they don’t do (at least in Austin) is provide seniors with any type of discounted fares, resulting in a considerable expense for folks primarily reliant on Social Security income and the like for their expenses.
As is the case with paratransit, RideAustin could have offered reduced-price — or even free — trips of this nature for seniors, and unlike paratransit, they could’ve done so using drivers’ own vehicles, thus reducing its capital expenditures to a substantial degree. Further, RideAustin could have readily sought out additional funding for this endeavor from various foundations and charities dedicated to funding service providers for seniors, thus keeping it going even after RideAustin’s initial round of funding ran dry.
“Safe Ride Home” programs
Although the city has a number of service providers offering Austinites safe rides home — primarily ones intended for people too intoxicated to drive, but also for college students walking home from campus late at night — few of them are comprehensive in scope, and none except UT’s E-Bus program (which provides free bus rides to and from downtown for students who live in West Campus or along E. Riverside) are inexpensive. Further, even the E-Bus program is limited in nature; it’s only available Thursday through Saturday nights, and also only provides transport between Sixth & Colorado and either the campus area or Riverside vicinity. Designated-driver services such as Sober Monkeys can drive people home in their own cars, but at significant expense: Sober Monkeys charges a flat $40 for their services within a mere five-mile radius, and more the further they have to drive. Finally, it’s stating the obvious that TNCs themselves can, and frequently do, provide safe rides home, but their services can also come at a considerable cost, given that TNCs are typically in surge-price mode when most of the “party crowd” is ready to call it a night.
RideAustin could have provided a variety of different subsidized or free services to address this need. They could’ve used shuttle vans to transport those who live in parts of town not served by the E-Bus system (or CapMetro’s Night Owl routes). They could’ve directly partnered with various nightlife venues known for having unusually large revenues from liquor sales each month. (If memory serves, Top Golf near the Domain remains at the top of that particular list.) Outside of services specific to “partiers,” they could’ve offered safe rides home for young women like Haruka Weiser, the UT freshman who was tragically strangled to death last year while walking home from campus at night.
But they didn’t. Instead, RideAustin elected to focus its efforts on designing an app that would eventually have to compete head-on with the vastly more sophisticated ones developed by two multibillion-dollar companies — and one that competed with those developed by Fasten, Fare, GetMe, Tride, ScoopMe, InstaRyde, zTrip and Wingz from day one. (And note that the first two already had functional apps ready when U/L exited the market.) And its failure to see the forest through the trees and think in a longer-term context may very well prove to be its undoing.
Conclusion
As I mentioned in my first piece on the subject two weeks ago, this is a tale with no outright winners — and just to be clear, I’m not at all happy that RideAustin, a nonprofit company launched with unambiguously noble goals, may very well find itself unable to survive in the face of competition from two “unicorns” with effectively limitless funds to spend on recapturing control of the Austin TNC market. My point, however, is that RideAustin could’ve blossomed into something much more significant than simply being one of Austin’s numerous TNC startups, and such a course could have very well been pursued had its leaders given more thought to its longer-term prospects much earlier in the game.
Based on RideAustin’s various statements to the public and on Facebook, I gather it’s now running low on cash (though I don’t know how low), and that it’s probably too late at this point to change course. Still, it did effect change, and in a market niche with players making countless morally dubious judgment calls, RideAustin successfully stayed above the fray. I just wish it realized far sooner that its trajectory wasn’t into the clouds, but rather on a collision course.
Footnotes:
- Fasten claims its trip counts are only down about 16 percent. Suffice it to say I’m skeptical about the veracity of this claim. Fasten has, on repeated occasions, made claims that don’t appear to gel with reality, e.g. that it had the highest trip count during various periods of time (when RideAustin made identical claims that it had the most rides, and provided detailed data to back their claims up).
- Ironically, even Uber doesn’t appear to fully understand its value proposition to riders. Economist Steven Levitt (of “Freakonomics” fame) conducted a study of 50 million Uber trips taken in four large U.S. cities in 2015 — and note that Levitt and his fellow researchers worked independently, not for Uber itself. They measured admittedly wonky stats such as “consumer surplus” and “demand elasticity” using “big data,” based on formulas derived from demand curves during Uber’s surge-pricing intervals, but in lay terms, they determined Uber users would’ve been willing to pay $6.8 billion more for its rides in 2015 alone. The academic paper detailing the study can be found here.
- Austin Mayor Steve Adler has openly bristled when confronted with criticism about the local TNCs’ various system crashes, and a few months ago he tried to defend them by noting that Uber experienced a similar crash at last year’s Democratic National Committee convention. The problem? This didn’t happen. While it’s true Uber experienced a slowdown on the first night of the convention, it wasn’t because of any problems with the app; rather, understandably tight convention security was the culprit. All UberX drivers had to “pick up a security pass, enter the security perimeter, wait in line in their cars outside a tent to be selected to drive a customer, then return the security pass and take the customer on their way,” resulting in unusually long wait times for requested rides — though only on the convention’s opening night.
- To be fair, RideAustin has previously indicated that the IRS okayed its 501(c)(3) paperwork, and I have no reason to question its basic legitimacy as a nonprofit. Still, RideAustin — despite its promise of “complete transparency” — has yet to reveal any of the specifics of its nonprofit status. Unlike most 501(c)(3)s, for instance, it hasn’t posted a copy of its 990 form — which all such nonprofits are required to file with their annual tax returns — on its website, nor has it revealed either its balance sheet or how much it’s paid out to Crossover, the other company Andy Tryba runs. Crossover explicitly seeks out “the best [tech] talent in the world” and exclusively offers “40+ hour/week long-term, high-paying positions,” and I think it’s a reasonable assumption that its services don’t come cheap. (Also, while one could argue there’s a potential conflict of interest with Tryba running Crossover as well as a nonprofit entity that’s a Crossover “client,” it’s difficult to do so without knowing the extent to which Crossover has been compensated for its work for RideAustin.)
