Lyft Embraces Consumer Subscriptions

Lyft is reportedly testing consumer subscriptions for rides in several price ranges designed to get people to skip using a personal car. Trips included in the subscription must be for distances that cost less than $15 for non-subscribers, according to Mashable. You can check how far you can get for $15 using the Lyft Fare Estimator.

Subscribers whose rides cost more than $15 would receive discounts of $15 off longer rides. Lyft’s target audience is the urban and suburban consumer who would instead leave their car at home.  Some of the offers made to users featured a monthly $199 plan that includes 30 rides (Las Vegas) while others received up-front payment offers for seven rides for $50 and $400 for 60 trips.

Lyft is taking this model seriously. It may provide the kind of simple calculation that consumers can adopt when they compare the cost of using a car to get around town in a Lyft. The subscription model, which expires monthly, may look like the better deal.

But “breakage,” the write-off of unused service each month, could result in substantial revenue for Lyft that consumers see as lost value because they spend the money without getting the benefit of rides. There is no way for consumers to squeeze every cent of value out of the system without assiduously scheduling rides up to, but not over, the Lyft limits.

Breakage is a familiar pricing model in online services. For example, Dropbox For Business Standard costs $12.50/mo./user for two TB storage. However, most users won’t store anywhere near two TB of data in Dropbox, creating breakage that can be worth up to $10 a month to the company. That difference between the storage capacity paid for and what is used — the breakage – subsidizes the free Dropbox offer of two GB for that draws in paid users. Lyft is taking a page from an old playbook, and it is likely to work.

Up-front pricing, such as $400 for 60 rides, preserves the rider’s spending for actual use. But these steeper prices can be designed to push consumers to the more profitable breakage model.

While Uber has started to build its car service into consumer product and personal services programs, such as its partnership with bgx, a salon company that will send a stylist via Uber to the customer or ferry the customer to a salon, Lyft is focused on a more tangible feature, the consumer’s budget. Uber’s approach will drive costs toward service providers who bundle mobility while Lyft’s will insulate ride

This marks a significant moment in the mobility wars. It shifts the convenience value proposition toward a price-based value proposition.  Lyft’s subscription model makes choosing to forgo owning a car for people who need some rides in an urban area a simple matter of budgeting. Choosing to spend $199 a month to have a car available or trips of four or five miles, which approximates most urban travel needs, is more straightforward than buying, parking, servicing, and fueling a car.

MIT Paper Suggests the Gig Economy Is An Illusion

The Massachusetts Institute of Technology’s Center for Energy and Environmental Policy Research has released a paper that purportedly blows a hole in the ship of the gig economy. The findings are already much contested, and I’ll lay out in this posting where more research is needed, the flaws in the paper’s methodology, and the policy implications of the MIT CEEPR report.

Here is the damning summary of the paper’s findings:

Results show that per hour worked, median profit from driving is $3.37/hour before taxes, and 74% of drivers earn less than the minimum wage in their state. 30% of drivers are actually losing money once vehicle expenses are included. On a per-mile basis, median gross driver revenue is $0.59/mile but vehicle operating expenses reduce real driver profit to a median of $0.29/mile. For tax purposes the $0.54/mile standard mileage deduction in 2016 means that nearly half of drivers can declare a loss on their taxes. If drivers are fully able to capitalize on these losses for tax purposes, 73.5% of an estimated U.S. market $4.8B in annual ride-hailing driver profit is untaxed.

There are several underlying problems with these findings, ranging from the way that the researchers characterized the share of earnings from driving to the research team’s conclusion that because drivers can take the standard mileage deduction when calculating their taxes the on-demand mobility business goes mostly untaxed. Uber’s chief economist, Johnathan Hall, examined the report’s findings in a Medium posting on Sunday, suggesting the estimated earnings are deeply flawed.

The authors fail to note that every transportation provider, from a Lyft driver and local taxi to a long-haul trucker or local salesperson, may take a $0.54 cents-per-mile deduction on every mile they drive. By extension, the MIT research is arguing that all mileage deductions are a form of subsidy rather than a recognized cost of doing business. There is a substantial debate to be had about the mileage deduction’s sustainability, but these research judges that policy debate with an emphatic assessment of its own that is not supported by the data or current law.

The full research report will not be available for six months, as it has been distributed to CEEPR’s sponsors and remains inaccessible to the public. We think that’s counter-productive, as it prevents a full assessment of the data gathering and findings.

What stands out for us is CEEPR’s comparison of Driving Costs and Driving Revenue without regard for the number of hours driven in the available data. Uber’s critique of the research revolves around how drivers characterized the share of revenue they earn from driving. CEEPR’s methodology uses qualitative expressions, e.g., “very little” or “around half” of the respondent’s income attributed to the share of income earned from driving both with and without distinctions between all income from on-demand work or any questions about the specific number of hours driving.

We need to see the full data set and the research paper. However, it appears that based on these qualitative assessments by drivers, the MIT team used hard statistical categories to discount reported earnings, apparently by 50 percent or more from what drivers said. Uber argues that the methodology builds in a 58.5 percent discount on actual earnings. We understand this is a conservative statistical approach to take. However, it seems to have reduced the real income reported because the number of hours driven to earn any income isn’t factored in. MIT CEEPR should release the full report so that others can review the methodology.

Drivers in Las Vegas responded to the report in this ABC15 news report. In more than 100 conversations with Lyft and Uber drivers, I’ve found that the drivers typically earn more than $18 an hour, and those who drive full-time or near that level do report having an economically satisfying experience in most cases. More drivers report that ride-sharing is their primary job, as well. That said, a significant minority of these drivers reported that they commuted 100 miles or more to major cities to work for three-to-five days straight, while sleeping in their cars, to earn a viable living for their family back home.

Gigging isn’t perfect, there is plenty of room for improvement. This paper adds to the controversy and requires full disclosure of the data to support the discussion about how the economy can evolve for fairness and prosperity among workers.

Every driver should be treating their ride-sharing work as a business, taking the maximum appropriate tax benefits for mileage, writing off car payments and repair to the extent that they are attributable to ride-sharing revenue.

Didi diversifies with Bluegogo

Here’s the problem with building a purpose-specific marketplace, such as a consumer mobility platform like Uber, Lyft, or Didi Chuxing: Once the platform is saturated, it’s necessary to diversify. In the case of China’s Didi Chuxing, the ridesharing company is adding management of a bike-sharing service, moving into an adjacent, though painful, market with its platform.

Didi customers will get access to Bluegogo bikes in Chinese markets. Didi is taking a chance with Bluegogo since the company has already failed. In fact, all Didi is doing is acquiring Bluegogo’s abandoned bike inventory, hoping to earn back the cost by increasing revenues from existing customers.

As on-demand evolves, the apparently explicit delineation (rides on demand versus, for example, housecleaning) between one consumer market and another will become a barrier to expansion. Markets are more efficient when they include many products and services than in any dedicated marketplace. Early leaders in transportation may find that adding any non-mobility service proves difficult.

Didi customers may consider taking a bike instead of a ride. But not all those customers will be interested in bike options, so expansion into bike-sharing could produce little incremental additional spending by Didi customers.