The Real Future of Ride-Sharing

As Thanksgiving dinners begin for those in the US, here’s something that’ll impress even the most stringent of relatives - Ride-sharing is expected to be a $100B market in a matter of 3 years.

For context, here are some comparisons:

  • You could buy 30 Major League Baseball (MLB) teams

  • The White House 80 times over (if it were theoretically for sale)

  • Family vacation to space (even if you’re family had 100 people in it)

So yes, the ride-sharing market is massive and will continue to get larger and larger.

Let’s cover the basics.

Uber started off in 2009, with a beta launch in 2010. The goal of Uber was simple - get rid of the atrociously high costs of hailing cabs. One of the founders, Garrett Camp, claims that the initial idea came when he paid upwards of $800 on New Year’s Eve to get a taxi.

Uber2012.jpg

The initial idea for cost reduction was also simple - be able to share rides with people headed the same direction. As many of such double-sided-marketplace services do, Uber only offered luxury cars through their app - which makes sense; without a fleet of cars to support massive cheap demand, and without a crowd ready to drop even a medium sized sum on an untested service, starting off with luxury cars was a good decision.

Slowly but surely, the idea expanded towards cheaper rides. Some of Uber’s first hires included scientists who were primarily employed to predict traffic and ride-hails before they happened.

Regular drivers, after a thorough background check, were allowed to use their own cars for Uber’s cheaper service (UberX).

Fast forward to today, Uber has expanded into hundreds of cities, tens of countries, and several closely connected ventures - UberEats, and autonomous vehicles being two of them.

Lyft2012.png

But we’ll get to that in a second.

Lyft started off at around the same time. Though hard to tell when Lyft was officially created, its roots can be traced back to 2007 with the inception of Zimride. Logan Green and John Zimmer started Zimride when they realized that long distance rides were a massive hassle. Be it visiting a girlfriend who was 200 miles away, as was the case for Logan, or noticing that a lot of road-based public transportation moved with inefficiencies - there was a clear problem to be solved.

Lyft’s transition was much like Uber’s as well - including luxury and cheap services, eventually, a pool/shared service, tie-ups with corporations for separately itemized business trips, shared bike services, and autonomous vehicles.

With a significantly smaller international presence (save partnerships with ride-sharing services in China and India), Lyft has surpassed Uber in its efforts to remain PR positive. As Uber and Travis, justifiably, took hit after hit on issues ranging from sexual harassment to fair pay - Lyft quietly took advantage of the slip-ups.

Today the market is split roughly 70/30 in favor of Uber, with the world waiting to see whether there will be a single victor or a delicate symbiosis allowing them both to succeed.

Uber and Lyft have been very successful so far.

As I mentioned above, both companies began to solve a simple problem - inefficient and expensive transportation systems.

There were a few measures that they took to cut costs:

Low upfront costs: Unlike traditional transportation companies, Uber and Lyft have had no need to buy a single car.

Express Pooling: By picking up multiple passengers along the way, without going into the depths of neighborhoods, Uber’s making carpooling profitable (which UberPool isn’t)

Increased Salaries: As surprising as it may seem, 70% of drivers surveyed claimed that they were making more with ride-sharing, in comparison to their previous jobs. Despite the arguably overall low pay that Uber and Lyft provide, the lack of steady alternatives allows both services to still take as much as 25% of the entire fee.

Now that you know how the two ride-sharing giants were born - here’s why a third company might be in the lead.

The problem with Lyft and Uber is that cost-cutting measures are running out.

How much cheaper can you make a ride-sharing service?

This is (not drawn to scale) a conceptual breakdown of the cost a ride if you decided to start a Taxi service:

The Real Future of Ride-Sharing - Taxi1.jpg

There’s a really heavy cost for buying a car in the beginning, with wages and gas as a tiny portion of the unit cost. Over time, the relative cost of the car purchase decreases.

Here’s what it looks like after a thousand rides:

The Real Future of Ride-Sharing Taxi1000.jpg

This is (not drawn to scale) a conceptual breakdown of the cost a ride for Uber:

The Real Future of Ride-Sharing Uber.jpg

No cost of buying a car.

Uber and Lyft started off with an intelligent and necessary hypothesis: Let’s get rid of the cost of the car entirely, and instead make up for the added costs that drivers pay for their cars with other incentives, subsidies, and wage offsets.

Tesla, yes the Elon Musk brainchild that’s been nefariously in the news for one reason or the other, has an entirely different hypothesis: Let’s keep the cost of car, but get rid of the wages and the gas costs so that the single ride a year from now truly costs pennies instead of dollars.

This is (not drawn to scale) a conceptual breakdown of the cost a ride for Tesla after a thousand rides:

The Real Future of Ride-Sharing (5).jpg


Some very back of the envelope math yields this:

  • Assume a 6 mile ride in Berkeley, CA

  • $1.65 base price is a mandatory fee, $0.17 cost per minute, $1 cost per mile

  • Cost to customer = $9.35

  • Driver earns = $7.48

  • Uber earns = $1.87

With the average cost of $3.67 per gallon and an assumed 24 MPG of a given Uber car, that’s 12% of all earnings gone towards gas, and 88% gone towards labor, car maintenance, etc.

I won’t bore you with any more math here, but the end result is that a $9.35 drive could be brought down to at least $4.00 (assuming that Tesla’s are twice as cost efficient in comparison to the average Uber car, labor costs are none, car maintenance costs remain the same, and Uber keeps its cut).

Musk announced in a blog post titled “Master Plan, Part Deux”, that he aims to see a ride-sharing Tesla fleet in the future.

TeslaAuto.jpg

“Since most cars are only in use by their owner for 5% to 10% of the day”, it makes perfect sense for Tesla owners to give up their cars for the remaining period of time in exchange for a money (AirBnB concept).

The reason it works especially well here is because you’re not handing your car off to another company or to another person - you’re instead allowing passengers to use your self-driving car to get from one place to another. The worth of a single Tesla becomes tenfold that of any other competing car with this concept, also propelling Tesla cars to the top if all the assumptions here hold true.

You see, as Musk claims, with a fully autonomous vehicle, your car becomes a source of income every time you go on vacation or to work, or even as you sleep. And with it, the world (the western world to begin with) gets access to unfettered, incredibly cheap, and carbon-neutral transportation in a beautiful car.

This isn’t to say that Lyft and Uber aren’t investing heavily into autonomous vehicles, nor that Tesla’s close to achieving its utopian dream; but more so to illustrate the practical and inevitable future of inexpensive ride-sharing - one possibly without drivers altogether.