To make a little extra money, I decided to check out Uber and Lyft, a couple of ride-sharing services here in Phoenix. I’ve been driving for Uber since the beginning of September, and Lyft since the beginning of October. Overall, I spend about 20 hours driving each week and typically pull in over $400 net (after they take out their 20% commissions).
I find these services fascinating on several levels. First, they represent a truly innovative way of “matchmaking” — they use technology to hook up people who want a ride with people who have a car and are available to provide rides. A fee is involved which the ride-sharing service collects directly from riders and is paid to drivers weekly after they take out a modest commission.
Each service has its own particular set of rules and guidelines, and each says it’s a technology company and not in the transportation business.
The upshot is … they’re driving traditional cab and limo companies berzerk.
These guys exemplify what typically happens when someone comes up with an innovative solution for an existing product or service and the entrenched players ignore it. There’s no reason that cab and limo services could not have done this! But now they’re fighting tooth and nail to convince lawmakers to protect their outdated business models, as well as convince consumers that the services are “illegal”, “unsafe”, and otherwise just plain wrong.
I read a book years ago called, “Innovation: The Attacker’s Advantage” by Richard N. Foster, published in 1986. It may seem dated, but it’s just as relevant today as it was back then. Foster basically shows how it is that companies who are the dominant players in the market are usually the last ones to embrace a new technology, and ultimately end up getting dethroned by innovative companies who have nothing to lose. Essentially, he’s talking about how innovators cause disruptions in the marketplace.
Ride-sharing companies like Uber and Lyft are creating a major disruption in the transportation market right now, and ultimately they’re not going to go away.
TODAY’S DYNAMICS IN CONSUMER TRANSPORTATION
There are a couple of reasons why I say this, based mainly on some current trends, or dynamics, that are happening in the market today.
First of all, we have this demographic group called “millenials” who were born between 1980 and 2000 who have grown up in an environment that has led them to be somewhat “anti-consumption” minimalists. They don’t buy cars or homes, and prefer to pay cash for whatever they need when they need it. They want what they want, and they want it now. And they don’t want to deal with any baggage afterwards.
Second, we have entrenched transportation companies like taxi cab and limo companies who have been doing their thing for decades. These are mature businesses that have evolved in large part to fit the demands of drivers and politicians. The “rider experience” has not changed much during my lifetime — cabs are just as uninspiring and smelly today as they were when I was a kid, and you still have a very good chance of getting a driver who has bad B.O. and barely speaks English.
I can’t comment on the higher-end cars because I never use them, and rarely use taxis. I find them simply too cost-prohibitive. If I need a ride to the airport and I can’t get a friend to drive me, I’ll take SuperShuttle or something like that. Twenty bucks is tolerable, but $75 is not.
The problem with taxis and limos is two-fold: first, their prices are ridiculously high. But more than that, there simply aren’t enough of them on the road during peak hours to keep pick-up times down to a reasonable level. This built-in constraint is part of what justifies their higher prices — supply vs. demand as it were.
These limits are due to companies that are effectively constrained by the number of cars they can afford to have sitting idle during most of the week when demand is low.
In other words, prices are typically high because somebody (usually the consumer) has to bear the costs of having empty vehicles sitting around most of the week. If they could afford to have enough vehicles to cut pick-up times in half during peak hours, it would roughly double their fleets, as well as what they’d have to charge customers.
Now imagine a system that enables as many cars to be on the road as possible (or as needed) during peak hours. Pick-up times are minimized; costs to the customers drop; and they get better, faster, friendlier service from “ordinary people”. All you need is a system to connect people who want rides with people who have cars and are available to drive. This is what ride-sharing services are doing.
And the taxi cab and limo services are screaming like stuck pigs. Why? Because ridesharing is up-ending the economic constraints of their business models.
Also, while they don’t want to talk about it, people who drive for traditional livery services earn very little money. Many of them work full-time and cannot earn enough to get off of food-stamps and welfare, making it a great job to qualify for such subsidies if you need to show that you’re working some minimal number of hours per week. But it’s the companies that are making all the profits, not the drivers.
Lots of taxi drivers are, in fact, switching to ride-sharing services and finding they’re earning more right away. Unfortunately, too many of them cannot qualify to drive their own cars given the requirements such services have for vehicles.
TWO OTHER TRENDS
There are two other trends that are ultimately going to lead to the demise of traditional taxi and limo services. One is electric vehicles, and the other is self-driving vehicles.
Electric vehicles are on the horizon, but they’re too expensive for traditional taxi and limo services to acquire without raising their prices further. Not until 2020 or so will they become cost-effective for commercial fleets. As electric vehicles gain market share, the price of gas will slowly go down. But ride-sharing will increase, helping to reduce the demand for not just gas, but automobiles overall. (Hybrids like Toyota Prius’ are very popular with ride-sharing drivers!)
Self-driving vehicles are a wild-card that I predict will transform personal transportation as we know it. These will start entering the market in 2020 and will probably dominate the market by 2030. While it might sound crazy, the largest fleets of these vehicles will most likely be municipalities, rather than traditional livery services. This is because they’ll give municipalities a way to monetize their roadways and parking structures by having fleets of self-driving vehicles that allow them to eliminate cars in high-density places like downtown areas.
This will come about because of two converging trends: millenials who don’t want to own cars, and baby boomers who are getting too old to drive.
That is, ride-sharing is going to expand, and ultimately be replaced by fleets of driverless vehicles that operate exactly the same. Except ride-sharing is a crowd-sourced solution, while driverless vehicles will be provided through fleets owned by the same people who own the roads and sewers and water systems.
Simply because municipalities (ie, Government services) are designed from the outset to meet higher-than-average demands. Another way to put it is that driverless vehicle fleets will be run like utilities — buses, subways, water, power, garbage, etc.
A municipality can afford to have a fleet of vehicles that can meet peak demands, and keep the costs to consumers low, because they’re operating on a not-for-profit basis. However, for-profit companies cannot afford that. They have to support “average” load factors; meeting peak rider needs is cost prohibitive and would increase costs to the point where it would not be economical.
Simply look at the far lower costs of ride-sharing services today vs. taxi and limo services. Sure, there are issues with insurance and other stuff, but that’ll all get worked out fairly soon as insurance companies and lawmakers put their heads together and come up with cost-effective solutions for people who own cars, have exemplary driving records, and who want to drive part-time for ride-sharing services — a secnario that cannot currently support the current commercial insurance costs.
That’s MY vision. What do YOU think?