Thursday, September 06, 2012

Markets in Everything: On-Demand Ridesharing

From today's San Francisco Chronicle, an article about how social media, smart-phone technology and "on-demand ridesharing" is challenging the city's taxi cartel:
The taxi business in San Francisco is famously fractious. "It's like a car crash - you can't look away," says Hansu Kim, owner of DeSoto Cab Co. Drivers and cab companies bicker, freelance town cars poach fares, and there are not enough cabs on the street
.
That's how it has been for years, which is why it's been easy for some savvy startups to jump into the market. They've invented smartphone apps that combine ride sharing, social media and (in one case) pink mustaches to capture a trendy new way to get around town. Suddenly, a taxi looks old, dated and sadly unhip.

The startups - SideCar, Lyft, Uber, RelayRides and Getaround - let riders pay with a preloaded credit, request a ride with a click of a smartphone and track it in real time on a Google map. It's far more efficient than calling a switchboard, talking to a surly dispatcher and standing on the corner at 2 a.m. wondering whether a cab would show up.

"We are offering a more enjoyable alternative," said John Zimmer, co-founder of Lyft, which uses cars with pink mustaches. "We offer a marginally less-expensive experience with extreme convenience and personality experience."

The popularity of these companies is forcing taxi folks to realize they need to make changes. "The industry is spoiled," said Kim. "Many of the ills have been self-inflicted."
HT: Morgan Frank

29 Comments:

At 9/06/2012 9:51 AM, Blogger morganovich said...

the speed with which this has taken off has really been amazing.

18 months ago, you kept cab companies phone numbers on your cell.

now, literally everyone just has uber.

this is like opentable for rides. once you start using it, the notion of calling and sitting on hold to get a cab becomes absurd.

someone will figure out how to do a meta ap and become the travelocity of ride sharing, the market will get deep and if they can implement better demand based pricing with easier provider entry (as lyft is doing) you could wind up with a very responsive system that finally has enough cars on halloween and nye.

this is going to be a massive success story if it is not regulated out of existence. as this takes a bigger and bigger bite out of the cab revenues, the cartel will respond and try to get these services banned.

the sf MTA and california PUC have already come after them (unsuccessfully so far). i hope uber etc can stay ahead of the regulators. it's a game changing service.

 
At 9/06/2012 10:15 AM, Blogger Moe said...

My first thought was I'm not sure I just want to pop into a car and trust my life to some dodgy new start-up where I have no clue about the due diligence the driver may or may not have been through.

But then again, when have I ever studied a taxi drivers license displayed in the back seat? Only to confirm the face matches the driver - and even then, there have been times in Chicago where I swear they do not even come close.

 
At 9/06/2012 10:33 AM, Blogger Buddy R Pacifico said...

How does the San Francisco city guvmint react to Lyft and others?

Sept. 5th, 2012: San Francisco Municipal Transit Agency Approves 200 More Taxi Permits..

"'This proposal is a win-win for our customers and for the taxi industry,' SFMTA director of transportation Ed Reiskin said."

"The additional taxis will enhance service for our customers, provide more shifts for taxi drivers, and will economically support our taxi companies by enabling them to better serve the public."


and...

previously non-transferable taxi medallions can now be sold for $300,000, with one third going to the SFMTA.

Hmm

 
At 9/06/2012 10:34 AM, Blogger morganovich said...

moe-

fwiw, in my own personal experience using uber, the drivers are more like what you would expect from a towncar service.

they are not even remotely as dodgy as their taxi driving counterparts.

i have literally never heard of anyone having an issue with an uber driver threatening them in any way.

doesn't mean it will never happen, but these guys have seemed well vetted to and professional to me in every case so far.

 
At 9/06/2012 10:35 AM, Blogger Larry G said...

I was looking at Uber for several cities and the prices are not cheap!

I'm not a city dweller so perhaps I'm not aware.

Is Uber cheaper than taxi's?

or is Uber just cheaper than Limos?

 
At 9/06/2012 10:40 AM, Blogger morganovich said...

buddy-

there have been numerous gub-ment responses to uber, lyft etc.

Uber has been accused in several jurisdictions of illegal taxicab operation.

In May 2011, Uber received a cease-and-desist letter from San Francisco's Metro Transit Authority, claiming that it was operating an unlicensed taxi service, and another legal demand from the California Public Utilities Commission that it was operating an unlicensed limousine dispatch. Both claimed criminal violations and demanded that the company cease operations. In response the company, among other things, changed its name from UberCab to Uber.[14]

In January 2012, an Uber driver's cab was impounded as part of a sting by the Washington D.C. taxicab commission. The commissioner said the company was operating an unlicensed taxicab service in the city.[15] Following a social media campaign by Uber's users, the D.C. City Council voted in July to formally legalize this type of service, with no minimum fare.[16]

On August 1, 2012, the Massachusetts Division of Standards issued a cease and desist letter to Uber, on the grounds that the GPS-based smartphone app was not a certified measurement device. But on August 15, the agency reversed its ruling after prodding by Governor Deval Patrick, saying that technique was satisfactory because it was under study by the National Institute of Standards and Technology

they are going to take all kinds of heat from vested interests, but so far have been doing much better than i would have suspected in combatting them.

lyft is particularly sneaky. it's a "donation" for "ride sharing". they set it up in such a way as to make it push all the eco buttons but not really look like a business. you're not paying a cab, you're chipping in for a shared ride. not sure how well that will hold up, but it's an interesting idea.

 
At 9/06/2012 10:49 AM, Blogger Jon Murphy said...

Larry-

I don't know if Uber is cheaper than taxis or not, but I do know taxis aren't cheap! A few months ago, I was in Columbus. Excluding tip, it cost me about $25 for a 3 mile trip.

 
At 9/06/2012 10:53 AM, Blogger Larry G said...

Jon - I was looking at Uber and I was seeing $15 minimums and $3 a mile.. I think..

I just glanced at several but they all seemed pretty pricey to me. Airport trips were 30, 40, and more.

 
At 9/06/2012 11:06 AM, Blogger Jon Murphy said...

Yeah, hired cars are expensive.

 
At 9/06/2012 12:32 PM, Blogger morganovich said...

larry- sfo to the north end of the city is $50 easy in a taxi. a quick shot across town will run $15-20.

i think you may be underestimating the price of a cab.

uber is cheaper for some runs, but around town mostly slightly more (maybe $1-2). but it's a nicer car, shows up when it is supposed to, and is easy to book and get an arrival time for.

cabs services do not do that. they tell you , sure, we'll come and then arrive at wildly varying times (if at all).

 
At 9/06/2012 3:00 PM, Blogger Larry G said...

Hey Morg - I'm ALL IN FAVOR of these services. I think they could provide service to a lot of folks who currently don't have a lot of other options.

but I think the sweet spot is going to be cheaper than taxi/limos but more expensive than transit.

In smaller towns, the transit systems are ungodly expensive on a per rider basis... and some kind of a volunteer uber type service could provide better service than transit and an affordable rate.

 
At 9/07/2012 8:50 AM, Blogger morganovich said...

larry-

i think you are wrong about the sweet spot.

these industries have already found the sweet spot.

it's a better car, a better service, and a more predictable pick up time with rates negotiated in advance.

why shouldn't it be more expensive?

that's like saying the sweet spot for Cadillac sales is going to be lower than a honda but above a kia.

i do not think you understand this market. maybe you need to live somewhere with expensive, unreliable cabs and try the ap based services a few times.

the real boom will come when the meta aps proliferate to let you see all available cars from each service and compare prices and the whole network moves to adaptive pricing to encourage more drivers to work during peak periods.

 
At 9/07/2012 8:54 AM, Blogger morganovich said...

also:

uber is not going to work well in smaller towns. (other that heavy tourist destinations) if you have low population density, the model doesn't work.

few people and long drives is NEVER going to be cheap.

consider the logistics. you have to drive someone way out, then get back unpaid, wait for another trip that may begin far away etc.

this model pivots on utilization rates. if you can do 5 rides an hour, you can price very differently that if you are only getting 2.

 
At 9/07/2012 9:11 AM, Blogger Larry G said...

re: " why shouldn't it be more expensive?"

well.. because in some places the transit system is dirt cheap but has horrible coverage and headways.

Also, in many communities, you'll find govt-operated Vans for the elderly and disabled but they again are limited in their service.

In some localities they now are providing on-call service for the elderly for medical or prescriptions or even shopping for folks who can no longer drive.

I'm actually thinking of two things.

1. - an on-call service that is reasonably-priced but provides curb-to- curb service as opposed to the dirt-cheap transit that simply is not accessible to most folks.

2. - a volunteer type uber service where folks can volunteer their cars to transport the elderly to the doc appointments and prescriptions and such.

there are a lot of different kinds of mobility needs besides typical taxi or limo service.

 
At 9/07/2012 10:20 AM, Blogger morganovich said...

larry-

that does not seem like an answer.

why do crappy transit systems mean uber should be cheaper than a cab? that has nothing to do with the question.

you seem deeply confused as to how business works.

uber is a higher quality offering than a cab, it will eb priced accoringly. you are not looking at this from the business side, just the "what i would like" side.

hell, if Ferraris were prices like hondas, i'd own 2. but there's no model in it for ferrari.

you are asking for folks to provide an expensive service at a low price and call it the sweet spot for the business.

it doesn't work like that. that may be the spot you wish it could exist at, but the financial realities doe not allow for $25k ferraris any more than $4 uber rides.

i'd like a 1200 ft2 suite of well appointed hotel room in the west village that's priced like motel 6, but nobody is going to be able to stay in business offering me one.

your whole argument here seems like "if someone offered me service that cost $15 for $4, i'd really like to buy them".

 
At 9/07/2012 10:29 AM, Blogger Larry G said...

" you seem deeply confused as to how business works."

well Morg, if you looked into how much the govt spends on transit - you might be more convinced ...

the money that we currently spend on transit is terribly wasteful yet it's justified so that low income, disabled, and elderly have access to transportation for necessities.

so that's where my thinking is...that some folks might be willing to provide Euber "light" if they are underemployed and want to earn extra money.

Are you familiar with the Pizza companies where a guy delivers Pizza in his own car?

What if that same guy was interested in providing lower cost taxi service in his other spare time?

he might actually make more money at that than delivering Pizzas.

so not.. I'm not "deeply confused", just thinking about innovation and opportunity - outside your box.

 
At 9/07/2012 10:55 AM, Blogger morganovich said...

larry-

again, that's total non sequitor.

what does what government spends on transit have to do with the costs of operating uber?

i absolutely agree that most public transport systems are big losers and heavily subsidized (especially light rail), but that says NOTHING about uber.

so suddenly, these "undeserved" folks will have the money for car services?

by LOWERING rates and pay you expect to attract MORE drivers? which way to supply curves slope on your world?

the delivery guy model you are discussing already exists. that's how lyft works.

that's how a number of these work.

using your own car does not make this that cheap. you need to pay for the car.

you pay gas, wear and tear, etc. you also pay the system for getting flags.

you are not thinking about innovation. you are ignoring basic business principles.

you are hoping to get $20 worth of stuff for $6 and making the bad assumption that someone could afford to give it to you.

try looking at this from the provider side and seeing the business model instead of from the "stuff i wish they sold at X price" side, and you will see why what you are saying does not make sense.

let's say you buy a car to use for this.

you drive 40 hours a week. let's call it $1/hr in purchase costs. you drive 20 miles each hour in a city. amortize car wear at 50c a mile, that's $10. you probably drop another $2 on gas.

add in insurance, taxes, parking, etc and you are likely adding around another $1/hr.

that's $14 hr in fixed costs.

now assume you pay $5/flag to the company that puts you in touch with customers.

let's say you do 4 trips an hour.

your fixed + marginal costs are now $34/hr or $8.50 a ride assuming you are doing really well.

so what do you need to charge to make this worthwhile?

to make $25/hr, you need to charge $14.75.

of course, 4 rides an hour is unlikely all day. morning and evening rush, maybe, but at 11am, probably not.

so you wind up needing to charge more.

in a rural area, you'd eb luck to hit 2 rides an hour and would have twice the amount of driving and long "deadhead" trips.

you do not appear to have looked at this from the business side at all.

you are just engaging in purchase fantasy.

 
At 9/07/2012 11:10 AM, Blogger Larry G said...

re: " so suddenly, these "undeserved" folks will have the money for car services?"

if the govt is spending $50 to transport someone.. would you support a more efficient model - based somewhat on the Uber model - i.e. smartphone based fleet of on-call para-transit rather than fixed route, fixed schedule models?

these transit vans cost 80-150K and their operating costs including the salary for the driver are extraordinarily costly but as I said earlier - virtually every small town in the US has some version of it to serve the low-income and other so-called "under-served" demographics.

I just see the on-call smartphone approach as potentially viable for more than just uber-type services.

after all.. why limit one's thinking?

nothing ventured. nothing gained.

you could combine it with pea pod type services.. or perhaps even package delivery type services.

 
At 9/07/2012 12:12 PM, Blogger morganovich said...

larry-

you really are the king of non sequitor.

first off, i do not thing "public transport" ought to be run by the government. it should all be private.

second, you are making a raft of assumptions based on no facts.

you have no idea what the cost comparison is.

$150k transit vans? i doubt that. a ford "transit van" is $24k.

and you really think that there are going to be enough private para vans to handle peak load? no way. it would not pay for itself except at very high rates.

worse, we're back to your top down thinking.

this is a really easy thing to get right.

take the government out, let people offer competing services and let customers decide what price/performance they prefer. that company will prosper, others will fail, and you get the right answer without any bureaucrat needing to guess or get involved.

i know you see it as more desirable. it's your jump to "more viable" that makes no sense.

running a set route every hour is easier than having capacity on call all the time. you clearly have no idea how utilization rates affect fixed cost businesses.

this issue is vastly more complex that you seem to think it is. you do not even seem to grasp the basics of how costs work in a business model.

you've probably seen 20 business plans in your whole life larry. i see that weekly. i work through this every day. you are totally missing all the salients here.

you are also thinking about the whole provisioning issue the wrong way. you seem to want to think "what government service should we provide?"

as a result, you miss that fact that we do not need government here.

all you need is to open the market and let businesses vy for customers. if you really must subsidize it, do it in cash grants to the handicapped, not to companies.

if you ever go into business lar, be sure to let me know. i'd love to watch that.


 
At 9/07/2012 12:20 PM, Blogger Larry G said...

I guess I'm thinking about how the govt can provide more efficient mobility services

and you are thinking that the govt ought not to be doing it in the first place.

I would submit to you that my view is more realistic than yours guy.

Most govt IS going to provide some form of transit for the demographically disadvantaged.

from that point on - the question is how to do it more efficiently.

until you figure out how to stop govt from doing this, I don't see your view as realistic.

 
At 9/07/2012 12:36 PM, Blogger Larry G said...

re: 150K transit buses

http://cdn.blogs.fredericksburg.com/kinggeorge/files/2012/09/Fred-Bus-11.jpg

and each one has to be wheel-chair accessible.

 
At 9/07/2012 12:36 PM, Blogger morganovich said...

larry-

no, it's not "more realistic". it's the same failed top down plan from the past.

if you insist on government funding for mobility, do it as cash grants. sell the existing services and vehicles to private companies. let them compete for the cash.

that's unrealistic? that's falling off a log easy. what's unrealistic is trotting out the same failed ideas from the past and expecting them to work.

what's unrealistic is assuming i'll spend money and give up car real estate in my vehicle to add a para lift and then be able to offer cheap rides. seriously, do the math on ROIC.

you have not even addressed issues of efficiency, just made assumptions based on no data.

you are as business illiterate as your are economically illiterate.

i'm sure you will now respond with an appeal to practice fallacy and run down your usual rabbit hole thereby missing the whole issue.

you have not even looked at this issue.

you want to provide a higher grade of more specialized service and expect it to be cheaper.

that's just nuts larry.

door to door on demand service costs more that set route busses.

you live in fantasy land lar.

 
At 9/07/2012 1:49 PM, Blogger morganovich said...

larry-

1st off, that's a bus, not a van. second, i saw no pricing data there.

3rd, can you seriously expect private individuals to buy those and then offer cheap, to the doorstep rides?

just how is using them to go door to door cheaper than using them on a bus route?

i really do not think you have thought this through at all.

 
At 9/08/2012 7:48 AM, Blogger Larry G said...

the problem with public transit is:

1. - fixed routes
2. - inconvenient, and in smaller systems, long headway times
3. - expensive in terms of equipment like wheelchair accessibility and capacity that seldom gets used but needs to be there by law.

Our local transit providers also provide special handicap-accessible vans to the designated disadvantaged population - which is also expensive and a bit redundant.

The local transit providers have said that it's almost cheaper to provide taxi service to people given the costs per rider.

My thinking was that most people do not need handicap-accessible equipment and can do just fine with a car and that if they could get point A to point B service at times convenient to them - that it might be a win-win in terms of costs per rider.

In other words - for the typical population - if some form of transportation that offered more immediate service on a point A to point B Ad Hoc basis - it has the potential to actually save money and people who currently pay 50 or 75 cents a trip might be willing to pay more if it actually saved them time and money over regular fixed schedule, fixed route service.

It's not solely a business-only perspective, I admit that.

But if we can get beyond the typical unrealistic libertarian perspective here and think about how to provide a service for less money ..then that's where I am on the issue.

the potential of dynamic transit via smartphone is far more than taxi/limo service, IMHO.

 
At 9/08/2012 12:12 PM, Blogger Ron H. said...

The problem with Larry's thinking on this subject:

Well - maybe just a few highlights. Not enough time for a thorough analysis.

1. Morganovich has thoughtfully taken the time to explain in some detail why your idea can't be cheaper than existing modes of transportation. There was no libertarian or other political perspective involved, but only a business perspective.

2. Barring government barriers to entry something would already exist unless you actually believe you're the first person to consider such an idea.

3. You are describing what is basically a taxi service that excludes the handicapped. Good luck with that one. I thought you were in favor of forcing every business to accommodate the handicapped? What changed?

"Larry's Rideshare - no handicapped allowed."

As an entrepreneur and innovator you would be writing in the 1st person, as in "This is a great idea that I should be developing."

But instead, as a statist and collectivist, you are writing in the second person as in "Somebody should try this because I think it's a great idea.

 
At 9/08/2012 12:21 PM, Blogger Larry G said...

re: libertarian perspective

Morg specifically said he did not think govt should be offering transit service to start with.

Since many businesses support transit, then this is not a pure business perspective but much more an anti-govt perspective since most governments around the world do provide transit.

re: not the first to think of

for something other than taxi or limo - can you show me other "thinking" on this. I do not claim to be the first but from what I understand, the idea of using smartphone type apps for transit in a new thing.

re: handicap.

I totally support it but having every single vehicle equipped with it because it is running a fixed schedule on a fixed route - is not the only way and certainly not the most efficient way to provide handi-cap accessible service.

For instance, have you considered how the handicap person actually gets to the transit pick-up point?

if you don't live nearby ... so lots of folks who are handicapped cannot actually use transit the way it currently operates.

But I love the way you neanderthal knuckle-draggers think about these things.

NOT!

 
At 9/08/2012 3:44 PM, Blogger Ron H. said...

"Morg specifically said he did not think govt should be offering transit service to start with."

And he's right about that. But, his explanation of why you can't provide door to door service cheaper than existing taxis was a business case with no ideology involved. If it could be done it would be done already. You aren't likely the first one off the starting blocks when it comes to new ideas.

"Since many businesses support transit then this is not a pure business perspective..."

What does that even mean?

"...but much more an anti-govt perspective since most governments around the world do provide transit."

"Everybody is doing it" isn't a valid argument. You need to justify why it should be done at all by government instead of private companies.

"for something other than taxi or limo - can you show me other "thinking" on this. I do not claim to be the first but from what I understand, the idea of using smartphone type apps for transit in a new thing."

You have already discussed several new alternate systems like Uber and they aren't cheaper than taxis just better. You keep arguing that such systems should be cheaper despite explanations of why they're not. What is it with you? Let it sink in, Larry.

This alternate system would have been cheaper than taxis, but it was crushed by government.

 
At 9/08/2012 4:03 PM, Blogger Larry G said...

well, here's the real deal.

Most, if not all industrialized countries in the world are also elected governance and virtually all of those countries voters favor transit systems in most cities.

It appears to me that the libertarian options are mostly 3rd world countries where they might be able to convince a dictator to adopt libertarian policies.

That seems to be the best option for those that are vociferously opposed to public transit.

What I favor, is public transit with handi-capped accommodations but done as efficiently as feasible including adopting technologies that would allow more flexible options for mobility - to include jitney's, etc.

but I'll go along with what most voters want... that nasty old majority-rules stuff..

:-)





 
At 9/08/2012 4:59 PM, Blogger Ron H. said...

"well, here's the real deal."

You have lost track of the subject. Bye Larry.

 

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