Uber, Lyft, and the Culture of Ridesharing: Can it Survive?

Remember when “uber” still meant “very” or “in excess of”? You know, before it became something drunk college girls screamed to one another over loud music in a bar.

What..? I can’t hear you. Whaaatt?? Chelsea, I’M WASTED. Didjucallanuber…?

Joking aside, Uber, Lyft, and really the entire culture of ridesharing does have some common-sense advantages—the least of which is less late-night drunk driving. I mean, I’m sure I’m not the only person who has horror stories of waiting at dodgy bus stops for public transportation that seemed to operate on a completely arbitrary time table. Or who continually got turned down for a taxi request because the driver didn’t want to travel to a part of town where it was unlikely they’d catch a fare back. (I’m looking at you, Pittsburgh Yellow Cabs.)

The Early Days

When Uber launched a decade ago, it was a clever way for (presumably) responsible car owners to earn a little extra cash driving people around town. It also gave riders a convenient and organized way to order and pay for these rides. It was essentially a modern jitney—without all the safety concerns and haggling over a fair price. And, in the beginning, it was pretty great.

Many drivers made such good money that they decided to upgrade from side-gig to full-time. Riders loved the immediate and on-demand ride-hailing that required little more than a swipe of the finger. And everyone (save for actual cabbies) seemed to get at least some amusement from the sheer audacity of it all. Because, you know, it was completely illegal.

But, alas, that bold little hatching of a start-up that battled cease-and-desist orders and effectively changed the way we think about transportation has now exploded into something almost unrecognizable from those early days.

Today, Uber is a multinational ridesharing platform and legendary market disruptor boasting over 110 million worldwide users, more than a few juicy corporate scandals, and hundreds of thousands of memes. It has branched out into food-delivery, freight shipping, bike and scooter rentals, and perhaps most famously, autonomous vehicle development. The company has even gotten in on the car subscription service game, teaming up with Fair to provide affordable pay-as-you-go contracts—mostly for those parties interested in becoming Uber drivers.

Ridesharing Goes Public

Just this year, Uber (and its spawned competitor, Lyft) began trading on the public market. And you might think that two major companies, whose tech and services have become not just ubiquitous but practically necessary to millions of people around the globe, would have an IPO valuation that makes sense, as well as hand-over-fist quarterly profits.

Uhh, well, you would be wrong. Way wrong.

Because Uber, a company valued at $82.4 billion when it went public in May 2019, lost a whopping $5.2 billion in Q2. That’s BILLION. With a B. Now, granted, $3.9 billion of that consisted of one-time stock-based compensation for employees post-IPO. Plus, there was that $300 million in “one-time cash driver appreciation rewards to qualifying drivers” per a SEC filing published in April. But even when you adjust for these singular expenses, the company still took a nasty hit in a mere 3-month period. And while Lyft weathered the quarter better, it too posted a significant loss—of $644 million.

So, what gives?

According to the NY Times, “The ride-hailing industry has faced scrutiny in recent months for the way its businesses burn money with no imminent likelihood of profits. Companies must constantly spend freely for incentives to attract passengers and drivers and to fend off competition.”

But, is all this profit-bleeding just a result of the way Uber and Lyft do business? Or is it a symptom of the culture of ridesharing in general? Are ridesharing services inherently unprofitable?

“The problem with ridesharing—a so-called two-sided market—is that there are low barriers to entry and the switching costs are low on both the supply side (the drivers) and the demand side (consumers),” writes Forbes contributor and management consultant Peter Cohan.

How many times have you bounced between the Uber and Lyft apps to see who was offering the closest drivers or best prices? And how many drivers have you met who operate for both companies—or more? While that power of choice has its benefits for consumers, it places rideshare companies in a price war, subsidizing fares to a degree that seemingly no amount of increased volume can offset. In fact, all this undercharging has resulted in Uber losing money every single year since it was founded.

According to NY Magazine, in 2018, “Uber was providing services at only roughly 74 percent of their cost,” resulting in negative profit margins. And while this is an improvement over previous years where revenue barely covered cost, “the reduction in how much Uber spends to get each average dollar of revenue didn’t come from improved efficiency, but was due almost entirely to cutting driver pay.”

The Honeymoon’s Over

“Drivers have long complained about poor pay, lack of protections, and an inability to band together to effect change,” writes transportation reporter Andrew J. Hawkins at The Verge. Remember, “Uber classifies its drivers as independent contractors, ineligible for benefits associated with traditional employment like health insurance, paid time off, or workers compensation. As such, Uber drivers can’t unionize, they can’t collectively bargain, and they can’t really strike in any organized fashion.”

And while one might argue that these challenges are par for the course in the gig economy, let’s not forget there’s a big, fat election coming up soon. And ambitious politicians eager to showcase their sensitivity to working class struggles have been quick to jump on the issue.

But, can the culture of ridesharing survive if its drivers become true employees? State senators in California are willing to find out, as they recently passed Assembly Bill 5 (AB5) on to the governor’s desk. A bill which, if signed into law, would reclassify these—and many other—independent contractors as employees who would receive protections and benefits… as well as generate more than $7 billion each year in new payroll taxes.

Barclays analysts estimate this move could cost Uber and Lyft upwards of $3,625 per driver every year, with associated costs totaling $290 million. Regardless of where you stand on the issue, surely you can see how nuanced challenges like these don’t just threaten the economic sustainability of Uber and Lyft, but of the entire culture of ridesharing. Current giants in the industry rely on not just cheap labor, but cheap labor that provides and maintains its own vehicles.

But, the Future!

Many people—both critical and supportive of companies like Uber and Lyft—argue that ridesharing services are playing the long game, betting on a brave new world of eco-conscious humans who share their rides with other earth-loving humans, while a friendly computer program autonomously transports them around their clean, zero-emissions cities.

Ah, yes. Well, about that.

First, I don’t care what any wide-eyed manufacturer or engineer tells you—safe and sustainable autonomous vehicles are still a long way off. Aside from mastering the complicated necessary technology, consumer surveys show that public opinion may actually be a bigger hurdle. AAA found that 71 percent of Americans are afraid to ride in fully self-driving vehicles.

Secondly, getting rid of the drivers and replacing them with a computer that doesn’t need bathroom breaks or affordable healthcare doesn’t just magically make your profit problems disappear. No drivers means no driver-supplied vehicles, which means companies like Uber now need to invest in a fleet, plus self-driving tech for that fleet, as well as ongoing maintenance, routine cleaning, security cameras, and anti-hacking software, among other things.

Thirdly, the only way ridesharing services actually become the future of sustainable transportation is if everyone agrees to use the carpooling features—like UberPOOL and Lyft Line. The problem? No one actually likes carpooling.

The Culture of Ridesharing Doesn’t Encourage Sharing

According to the SEMA Future Trends Report, “Today, 76 percent of Americans drive to work alone, consistent with what we’ve seen over the last decade,” despite there being a variety of new, alternative ways to commute. And you know why? Because no one really wants to share their ride—including drivers.

“UberPOOL has been a tremendous pain point for drivers since the product’s launch a couple years ago,” writes Harry Campbell, owner and founder of the The Rideshare Guy Blog and Podcast. Aside from complicating the pickup/drop-off process, drivers earn less per mile and minute when driving for POOL, and riders often complain more—despite selecting the option when ordering.

“For the most part, I’ve stopped giving UberPOOL rides unless I’m on a Quest Bonus or using the destination filter, and I know a lot of experienced drivers feel the same way,” says Campbell. “We actually surveyed drivers here in Los Angeles, a major UberPOOL market, and 75% of them were dissatisfied with their UberPOOL experience.”

Simply put, the carpool element adds uncertainty to the rideshare experience. Is that extra passenger going to be ready when the driver gets there? Will they be courteous? Will they clash with other passengers? Would it have been more cost-effective to just reject the fare? Would it have been better to just order a traditional UberX?

In theory, we already have sustainable transit—in the form of electric trains and low-emissions buses.

Unfortunately, their infrastructures are crumbling, the schedules and destinations make little sense, and every seat is either sticky or smells faintly of urine. If transportation startups were really concerned with revolutionizing the way people move, rather than presenting venture capitalists with “the next big thing,” they’d be finding ways to solve problems we already have, not creating new ones.

Can the culture of ridesharing survive long-term?

Perhaps. Keep in mind, that even with lost profits and driver strikes, corporate scandals and traffic increases, these services have been doing one thing really, really well: data mining.

Uber and Lyft possess a veritable treasure trove of information on user habits, popular destinations, traffic patterns, efficient pricing algorithms, and who knows what else. And in a future dominated by 5G, social media, and technology yet to be fully-realized, that’s a pretty big ace to hold in your back pocket.

The culture of ridesharing could very well endure. Just don’t expect it to always look like the Uber you took home last night.