Why Uber is willing to pay people to park their cars
Photo credit: Bloomberg
Two years ago John Zimmer, Lyft Inc.’s co-founder and president, predicted that car ownership would be non-existent in major American cities by 2025.
With seven years left to turn the country’s transportation landscape upside down, Lyft is now offering to pay people in about three-dozen cities to park their cars for a month, with the compensation coming in the form of $500 to $600 in credits for its ride-hailing service. There are also credits for bike- and car-sharing services, and public transit.
The move is a marketing gambit. Lyft will choose about 2,000 people to participate and hope that they will be honest about not using their personal car. This program will run for only one month, but it points to a real shift within the ride-hailing industry. Both Lyft and Uber Technologies Inc. have spent the year adding new types of transportation to their platforms. They each bought a bike-sharing company — Uber’s choice was Jump; Lyft bought Motivate — and are developing their own scooter-sharing services. Lyft also redesigned its app to highlight its carpool service, as well as public transportation.
The conviction behind these moves is that the future of ride-hailing companies will hinge on becoming more generalized transportation providers. Last year’s fixation on autonomous vehicles has been displaced — in the short term at least — by enthusiasm for lower-tech forms of personal transport.
Zimmer described the program, which the company has dubbed “Ditch Your Car,” as a way to get people comfortable with alternatives to car ownership. “We need to provide a reliable service that is competing with the idea that your car is parked outside your house, which is extremely convenient,” he said.
Turning the corner
He said Lyft hasn’t been on firm enough footing to do much more than survive for most of its history, but thinks it has turned a corner. The legal uncertainty around ride-hailing in the United States has been more or less resolved.
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Lyft has grown its market share to 29 percent, up from 16 percent at the beginning of last year, according to Second Measure, a firm that analyzes credit card records. Lyft said in June that it had raised $600 million in new funding. Bloomberg News recently reported the company has begun preparations to go public in 2019. Zimmer says progress in the core business gives the company the freedom to expand its scope. “We’re finally in a point of stability where we can double down on these efforts,” he said.
At the same time, the economics of ride-hailing — which will be the bulk of Uber and Lyft’s operations for the foreseeable future — are daunting. Neither company is profitable, and driver attrition and the costs of acquiring new riders is high. Bike and scooter-sharing services offer a way to connect with new customers. Because the vehicles are cheap and there’s no driver to split the fare with, they also have higher margins. Perhaps most importantly, though, a platform with multiple transportation options has a better chance of presenting a viable alternative to private vehicle ownership, which is a convenient but costly way for people to get around. The average cost of owning a car and driving it 15,000 miles a year is about $8,500, according to AAA.
Susan Shaheen, an adjunct professor of transportation engineering at the University of California, Berkeley, said that ride-hailing platforms are unlikely to be able to serve as credible alternatives to owning a car in their current construction. People take Lyft or Uber to the airport, or home from a night out, but regular commuting is less common. It’s logical the companies would move into new forms of transportation, she said. “Does this move them towards something that’s more sustainable in the business model? We don’t know until such a platform is created,” she said.
If the idea of a sprawling transportation platform isn’t new, neither is the idea of paying people to break them of the habit of car ownership. In 2000, Sunil Paul, the founder of now-defunct ride-hailing service Sidecar, filed for a patent that proposed a ride-hailing platform. One aspect of his plan was to buy cars from people who were interested in using the system to get around, compensating them in credits they could redeem to take rides.
Ditch Your Car
The operators of the ride-hailing system could then sell the vehicles to help fund its core operations. In 2009, Zipcar gave free memberships to 300 people who committed to stop using their own cars for a month. Those who participated reported that they walked and biked significantly more, and many said they’d continue to live without their cars. (Lyft piloted its own Ditch Your Car program in Chicago earlier this year.)
Paul said that Lyft and Uber will be able to beat out upstart competition in bikes and scooters, like the billion-dollar startups Lime and Bird. The existing user bases of the ride-hailing companies is a bigger advantage than the head start the smaller companies have in bikes and scooters.
But Paul says that the newer forms of transportation will serve mostly to funnel people into the ride-hailing service.
“I think all of this will lead back to the ride-sharing piece of the business, because that’s the common backbone,” he said. Zimmer said that Lyft has consistently had to train its customers to do things they weren’t used to doing.
When the company launched, there were major questions about whether any substantial number of people would be willing to get into the personal cars of strangers they found through a smartphone app. “Every step of the way we’ve thought about behavior change,” he said.
Zimmer argued that most people accept the costs of car ownership out of habit. “It’s just become normal,” he said. “We have to make it apparent why there’s an alternative.”