Uber and Lyft are the two biggest competitors in the “ridesharing” market, which is where car owners use their private vehicles to give strangers rides for money. Both services are enabled by smartphone apps that let potential riders book rides, while also allowing drivers to claim rides and bill for them. The companies take a cut of every ride, and the drivers pocket the rest.
Uber is the biggest company in this market, with over $1 billion in venture capital and a very aggressive global expansion plan. Lyft is the next largest. Competition between the two companies—as well as some smaller rivals—is intense.
When you think about their business model, it’s no wonder VC is flocking to some of these companies. You write a piece of code, you build an app, you do some marketing, and you’ve got a platform for ongoing revenue generation where costs make up an increasingly smaller and smaller part of overhead. You’ve got all these drivers—who are not employees, but private contractors—hustling and putting themselves at risk in traffic to make a few extra bucks, while you just kick back and take a cut.
And, obviously, the more drivers you have within a given market, the more potential rides and the more potential money you make.
Which is were the competition between the two seems to have gotten out of hand. This piece in the Verge exposed that Uber has a written formalized program for poaching Lyft drivers and recruiting them to Uber. A follow-on post on the NYT Bits blog summarizes Lyft’s contention that in markets where Uber is active in these efforts, it is reducing the average income for Lyft drivers. (In response to the Verge article and increasing press inquiries, Uber launched this page to put a shiny gloss on its practices.)
The way Uber’s poaching program works is that teams of Uber recruiters, working for hefty commissions and armed with burner phones that can’t be traced back to them, order Lyft rides and then try to recruit the drivers to Uber during the ride.
Lyft says that these rides are shorter than typical rides and thus impede Lyft drivers from snagging more profitable customers. They also allege that Uber recruiters further disrupt the ability of Lyft drivers to earn by ordering and canceling thousands of Lyft rides. Some of these are apparently because an Uber recruiter will realize that the Lyft driver en route to pick him or her up has already been given the Uber sales pitch, and thus is a waste of effort. But between the time the Lyft driver accepts the ride and the time the Uber recruiter cancels it, the Lyft driver may be missing out on other fares.
There has also been some speculation that Uber is having its recruiters order and cancel rides simply to make it harder for Lyft drivers to earn, thus putting Uber in a better light. And it also appears that many of these rides are canceled to avoid having Lyft’s management catch on that a particular phone number is associated with an Uber recruiter.
So Uber’s practices, which, again, are formalized and written in a playbook, definitely seem to have the potential to hurt Lyft’s drivers, as Lyft indeed alleges they have. But what are the potential long term consequences for Uber drivers? I’d assert they’re not good either.
The more drivers Uber has in a market, the more attractive the service seems to potential customers. After all, if you get picked up by an Uber driver faster than a Lyft driver routinely, you’re more likely to continue using Uber. Up to a point, that might help Uber’s drivers too. But it’s not hard to see a point beyond which Uber drivers start to compete with one another. Think how a Starbuck’s franchisee feels when he or she learns the company has awarded another franchise two blocks away.
This is ramp up and shake out time for the rideshare industry. It would make business sense for Uber to try to eliminate or marginalize other competitors in its markets, with the aim of being the lone credible rideshare platform once the industry matures and the market saturates. When your drivers are virtually the only drivers in a market, you get a cut from more rides. You also monopolize the labor market, so you can more effectively dictate terms to your drivers, deciding to take a bigger percentage of their fares, for instance. Because who else are they going to drive for?
Uber no doubt rationalizes its slimeball recruitment practices by asserting that they are trying to help Lyft drivers join a team that will give them better earning potential. And in the short term, that may be true. Uber can use some of its billion dollar VC nest egg to accept lower profit margins, pay higher commissions in the short term, and make themselves more attractive to Lyft drivers.
But does anyone believe that these practices bode well for Uber’s drivers in the long term? And does anyone think that a company that would engage in such practices would feel a compunction about deceiving its customers and its investors, too, if it thought the “business case” justified it?
There are things I like about the so-called “sharing” economy. For instance, I like being able to get a ride when finding a cab is impossible. I also like the idea that someone who owns a car can use it to earn a little extra money. But when the market shakes out, I believe the dominant sharing platforms are going to have masses of struggling independent contractors at the bottom of the food chain, and a select few people accruing massive transfers of wealth at the top of the food chain. Ultimately, I think ridesharing will just be a new model for trickle down economics.
I deplore Uber’s in-car recruitment of Lyft drivers, and I won’t use the company until it admits the practice is wrong and ends it. If Uber wants to recruit Lyft’s drivers, fine. But I don’t think riders should reward them for being rapacious slimebags about it.