What we learned from the first week of Uber & Lyft returning to Austin
by Andy Tryba & Marisa Goldenberg
Ridesharing in Austin got even more interesting on Memorial Day as Texas Governor Greg Abbott signed into law a statewide regulation framework overruling local Austin rules. After investing in 36 lobbyists to win this bill — Uber and Lyft got basically everything they wanted and both Silicon Valley giants turned their apps back on in Austin a few hours later.
What happened next with incumbant ridesharing companies is amazing. In just one week — Fare, the #3 player in the market, closed up shop in Austin. Fasten dropped their rates within 3 days and quickly expanded their discount program to attempt to keep the most price sensitive riders. And at RideAustin — we saw our volumes drop by 55% in 1 week (26.4k vs 58.7k the week prior — including the ~20% seasonality drop from UT students graduating and going home). The market power of the giants is undoubtedly significant as they’ve gained at least 20K rides from us alone. It’s hard to argue that the impact to the current local incumbents (including RideAustin) wasn’t swift and significant.
As we always do to uphold our ‘open data pledge’ — we will continue to analyze the impact and publish our findings — and here’s what we’ve learned in the first week:
1. It was amazingly ‘easy’ for Uber & Lyft to waltz back and re-capture riders
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. And perhaps this was to be expected — but basically all the big guys had to do is send out a note saying ‘We’re back!’ and use a little bit of their $12B in cash for discounted rides and they likely captured nearly 50% of the market (Uber, in an atypical move, actually issued an apology for how they left a year ago). Great brand recognition + good tech + rider discounts + low prices = good combo.
On the rider discount side — the giants did a few — but nothing terribly significant. We saw Uber giving $25 off ($5 off the next 5 rides) and Lyft 50% off rides (fine print: max savings of $5 per ride and 4 rides max). Uber embedded the $5 discount for everyone ordering rides (regardless of whether they saw the ad). Lyft required a few clicks to load the promo into a rider account — but no typing required.
We were at ~50% market share before Uber/Lyft returned and we had anticipated losing ~50% of that to them (to a steady state of 25%). But the swiftness of the our decline was certainly faster than we modeled. It could be that some of the riders are simply using the initial promos that Uber/Lyft are putting out — but wow — that was fast…
If ~12K of our trips was lost to seasonality, that would leave ~20K that went to Uber and Lyft. There are various reasons why riders opted to go with the big players.
The first and largest set of riders we believe we lost immediately are the super-price sensitive folks. The rideshare industry, for better or worse, has become a near-commodity service and has developed a very price-sensitive consumer. Since RideAustin is a few cents more per minute (we’re the same price per mile) — the cheaper apps win share. It’s unclear if we’ll get this segment of riders back as price point is their primary decision criteria (and while we could ‘match’ Uber/Lyft, we know we would never win a price war against them — and it would hurt drivers in the process). We’re assuming this was about 35-40% of our volume shift to Uber/Lyft.
The second set of folks we lost were visitors arriving at Austin airport — they simply turn on their usual app of choice — and now that Uber and Lyft *work*, these folks are oblivious to the other options in Austin. This is around 10–20% of the typical Austin rideshare volume, but likely higher share during the summer season. Previously, visitors might notice our airport advertising and download the app the airport — but quite often they’d take a cab to their hotel, and the front desk would educate them about RideAustin. Now, it’ll be very few people who bother to install a new app, when their regular one works just fine. Based on our fall-off in first time riders as a % of unique riders last week, we think visitors accounted for about 25-30% of our volume shift to Uber/Lyft.
The third set of folks we lost are temporarily using Uber/Lyft’s discount codes but may actually prefer RideAustin (and/or Fasten). But they’re taking advantage of ‘free money’ but may return. We think this is a small number of riders though — but we’ve seen this in the last year when we (or others) do discounts and see switch back after discounts expire. We’re assuming this was up to 20% of the volume shift (some of which may come back).
The fourth set of folks we lost were the folks that lumped us into the ‘benefiting from city regulations’ category. Despite the fact that RideAustin was formed after the Austin population voted — we’ve seen these same folks that believe that somehow the city of Austin kicked out Uber/Lyft and that the city was ‘anti-free market’. This was a minority but vocal crew that switched back immediately. We’re assuming this was 5–10% of the Uber/Lyft shift.
We’re sure there are other cohorts of people we may have lost due to the Silicon Valley giants for other reasons — whether that be their better tech platform or other reasons — but without additional granularity — it’s tough to model out. But in all scenarios — to lose 55% of our volume in 1 week (seasonality included or not) is a big number…
2. Drivers are keeping our app on — but we’ll need to stablize — or most will likely follow the demand
Many of our RideAustin drivers associate with our values, appreciate our openness and how we treat them. This has created a certain sense of loyalty — and there isn’t a day that goes by that we’re not incredibly privileged to have them part of RideAustin. Additionally, of course, they all make significantly more money with us vs Uber and Lyft (we’ve paid over $5M more over the past year) — so we’re seeing them keep our app on and ready for pickup. This has enabled, for the most part, great pickup times for the service yet. In many scenarios — we’ve had better pickup times than Uber and Lyft and we’ve seen large surge pricing from both to accommodate for the lack of drivers.
But since the rider volume has dropped by 55% — our drivers are getting less dispatches and our overall utilization rate (% of drivers in trip / total available drivers) is now often times under 20%. Long term, this would be a bad trend that makes it tough for drivers to make money. But to their credit — they’ve stayed loyal to RideAustin and we’ve been incredibly grateful. But everyday — we see more and more drivers turn on the Uber and Lyft apps to fill the gaps (or also opt to take vacation or find other sources of income for the summer)..
Given the anger that drivers had when Uber and Lyft abandoned them last year, it’s no surprise that both companies were aggressively recruiting new brand drivers who weren’t tainted by last year’s experience.
Before their return, Uber had 10+ Craigslist ads a day, and Lyft was running several types of new driver programs with heavy social media advertising. When we first saw Lyft’s $350 for 150 trips, we shared charts with our drivers that reminded them how much more they make with RideAustin vs. the competition across 150 median time/distance trips (it was substantially more than the Lyft sign-on bonus…).
But both companies courted their previous drivers as well, encouraging them to get their documents refreshed. As re-launch day grew near, both firms issued incentives for the first week back. And similar to how our incentives worked in the Fall — if you make them attractive enough, and with some strings attached, drivers do indeed focus on those incentives.
Adding a twist to driver psychology is surge pricing — loved by drivers, hated by riders. For the drivers that toil away all week for less than minimum wage rates on Uber & Lyft — they pin their hopes on scoring a $200+ ‘unicorn’ surge trip to take some people home from a bar at 2am on Saturday.
Our surge philosophy all along has been fair pricing that incentivizes the drivers without price gouging the riders. When we surge, RideAustin only keeps the booking and processing fees ($2, $1) no matter what — and pass on the rest of the rider charge to the drivers. In our view, this is optimizing supply and demand in its purest form — we don’t get any extra benefit from the inflated pricing. On the other hand.. Uber and Lyft grow their portion via the 25% commission — padding their pockets instead of the drivers’.
If drivers are in short supply during busy periods — you’re going to be paying inflated prices anyway… so why not use the app that pays drivers the highest portion? The above example shows a median trip (3.73 miles, 11.38 minutes) at surge levels that yield a $40 rider charge.
3. It’s too early to tell if ‘local’ is enough of a differentiator to maintain 20–25% market share
We’ve been really fortunate that when RideAustin users love us — they REALLY love us. It’s a strong attachment to the fact that we were here when they needed us, that our mission of paying the driver more, giving back to the community, and being open & transparent in everything we do. We believe we share the same values as many in the Austin community — and it’s been great to hear the words of encouragement to keep RideAustin open.
The nonprofits in our Round Up program are messaging their own supporters about RideAustin’s contributions, and some of our musically talented drivers are even organizing a benefit concert for us this summer.
Overall — we had a premise when we started that upon the eventual return of the Silicon Valley giants — that there would be a market for a ‘local’ player — roughly 20–25% of the market. We believed when we started that we could become efficient enough that 20k trips/week would enable us to break-even on the operations side while continuing to be able to donate money to local charities through Round-up. We are hoping that this premise remains — but are actively looking for additional ways where we can get even more efficient as we see where the steady-state volume is. At this point — we have no idea if it’s a straight negative slope line to zero or if there is a leveling off. We have seen a bit of a ‘flattening’ of the curve this week — but we’ll be watching it daily to stay above water. Running a rideshare is an expensive endeavor (see our cost breakdown in our previous blog here) — and we don’t want to have to raise donations to sustain the donations to local charities.
Below is a snapshot of our trip related revenue and cost structure — we included our peak loss month of September and our march towards positive gross margin. Some things improve with scale in our favor — e.g. Google API, insurance rates, Stripe processing fees, etc. But getting bigger also meant we became a target for fraud — our dispute fees have continued to rise (stolen credit cards used for ridesharing), and we were encountering a significant number of failed transactions ($100K+ in April alone) until we starting disallowing prepaid cards.
At about $1 of gross margin per trip, and aggressive cost downs on the OpEx side, we can run as a super lean no-frills nonprofit at 20K trips per week. For context, at our peak team size and peak marketing costs, we ran $100–150K/week in operating expenses. We’ve whittled that down during the spring to about $40–50K/week, we will get to $20K/week (and ideally lower) within a few weeks. Most of the savings come from further reducing headcount (esp. Support and Tech), but we’re also doing things like working remotely after our office lease was up, applying for a Google nonprofit grant to fund our online advertising, etc.
We’re continuing to work on programs and other low-cost marketing opportunities to keep our ride volume up, but the summer season slow down will be tough, no doubt about it.
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. RideAustin will continue to stand-up for what we believe and continue to attempt to change the industry (something we believe we’ve done in our small way through things like Uber/Lyft now doing more charity donations) — but we’re going to have to be good enough to compete and we’re going to continue to need the Austin community’s #ridelocal support. We’ve been open and transparent since the beginning — so we’ll also ensure we continue to blog about what we’re seeing and our actions.
Thanks to everyone (especially our drivers) for the support to date — it’s been fantastic.
