Written by Anna Chen
For students prone to late nights in Stern, Uber, Lyft and other sharing car companies are all vying to be top choice for that 2 AM ride home.
Many ride-share companies are competing fiercely for market share in bustling cities like New York. In these highly populated areas, stagnant public transit monopolies and growing populations create the ideal space for new sharing car companies.
“There are now more Uber cars than yellow cabs in the city,” said NYU Professor and sharing economies expert Arun Sundararajan. “Over time, I expect a majority of current yellow cab drivers to switch to driving on the Uber or Lyft platform.”
The ‘Carstache’ and Ride-Share Family
Up until this January, Lyft drivers strapped giant, bright pink fuzzy mustaches onto the fronts of their cars. Part publicity stunt, part brand-building, these mustaches helped identify Lyft cars and share the company’s friendly, peer-to-peer vibe. This year, Lyft toned down its trademark to a ‘glowstache’ logo on car windshields. Although this was partially done for professionals hesitant to exit a mustachioed car, Lyft still continues to use its alternative, playful reputation to position itself in a crowded industry.
“The real power of the Lyft model lies in individuals giving others rides in their own personal cars, a market-based approach to carpooling, and that’s what makes Lyft special — the blurring of lines between personal and professional — you ride with a DJ, a stand-up comedian, a software engineer between jobs, an artist,” said Professor Sundararajan.
Now that sharing car companies are multiplying, first movers like Uber and Lyft are establishing unique brands to draw in customers. If ride-hailing companies make up one sharing, caring and slightly competitive American family, Lyft is Uber’s hip young sister—attending NYU Tisch with a bright pink bob cut and full of charisma—she is eager to grow up and is now raising $500m to specifically take on Uber. Lyft is known for friendly drivers who prefer the company’s benefits to those of Uber.
In contrast, Uber is the graduated Sternie and second-year analyst who lives in crisp business formality. With a valuation of $40b, he faces high industry pressure as the first sibling and offers everything, including high-end services like personal drivers ideal for business. In typical sibling rivalry fashion, Uber previously campaigned for Lyft drivers to “shave the ‘stache” while Lyft had ads for drivers to “be more than a number.”
Fighting City Regulations
In NYC, both Lyft and Uber face stringent regulatory hurdles similar to that of home-sharing company Airbnb. Last year, the NYC government claimed Airbnb violated housing laws that prohibit renting out certain homes for short periods. Like Airbnb, ride-share companies spend up to half a million dollars per city lobbying for looser government regulation.
They are fighting enormous public transit monopolies that have enormous incentive to oppose the idea of sharing. Across the country, the taxicab industry has spent $3,500 for every $1 Uber, Lyft and newest entry, Sidecar have used on lobbying.
In order to compete with the heavily-protected taxi industry, ride-shares like Lyft have to compromise. Professor Sundararajan says, “Lyft did shift quite significantly from its traditional model in order to enter NYC, agreeing to only use TLC-licensed drivers. The shift was, in part, because NYC has a much deeper regulatory structure for taxis than any other US city.”
Shared Cars, Shared Value
Ultimately, city governments may have to support ride-sharing, because the benefits of efficiency greatly outweigh the safety risks and harm to taxi industries.
Taxis, personal drivers and subways contribute to traffic congestion in densely-populated cities like NYC. An estimated 80% of car seats on the road in the U.S. are empty. The current transportation system has no method to adjust for these factors and cannot even reduce overcrowding during peak hours, since taxicabs and trains have set costs. This means taxi drivers lack incentive to endure rush hour madness, while passengers overpopulate streets and subway cars.
To counter this issue, Uber, Lyft and other sharing-car companies charge “surge pricing” that properly incentivizes both drivers and passengers. Prices increase during busy hours to smooth out traffic flow in large cities.
During these surge hours, passengers are more willing to carpool or use public transportation to save money, while car drivers have more incentive to work. NYC has already tried to use the Citibike rental system to improve overcrowding, but if the city whole-heartedly adopts ride-sharing, it could significantly change even more lives of city-dwellers.
As Uber, Lyft and other sharing economy companies compete for profits in NYC, they will also be teaching New Yorkers how to improve their own lifestyle by sharing resources.
Sharing Cars Race for Market Share
To gain customers, these companies often compete offering free ride promotions for city-dwellers like NYU students. Currently, New Yorkers can witness Lyft fight for market share with Uber, which serves nearly six times more U.S. customers and operates in four times more countries than Lyft.
While Uber is already well-established in NYC, it also offers promotions in cities like Sofia, Bulgaria and Hanoi, Vietnam. Uber dominates the car-sharing industry both in New York and internationally; however, Lyft, having just launched in the city last year, has incredible potential for growth.
Last month, Lyft offered NYC customers 20 free rides (up to $20 in value), effectively spurring many college students to download the app for the first time. This promotion spanned fifteen major U.S. cities, which indicates Lyft’s aggressive and ambitious plans for growth.
The reasoning behind free rides is simple. Both Uber and Lyft need to convert public transit users and prove that the sharing car model is faster and more convenient. They also need to convince cities that their cars are better than the influx of new competitors.
Their best bet is to throw money and free services at customers in hopes that their marketing strategy inspires brand loyalty later on. If customers do not like their ride-share experience though, companies will have difficulty convincing them to switch.
Clark Tang (NYU Stern ’17) has used both Uber and Lyft but still favors taxis for the consistent price and service. He says, “Like many people, I learned about Lyft through word of mouth. At first glance, it seemed like an attractive option but I disliked my experience with Lyft because of the poor customer service. The drivers didn’t seem experienced and often went the wrong way. Lyft is creating demand through the promotion, but it’s operating on artificially low margins just to woo unsatisfied customers that may leave once deals are gone.”