On May 7, 2016, Austin voters headed to the voting booth after the most expensive campaign in the city’s history. Groups backed by ridesharing giants Uber and Lyft spent more than $8 million (shattering the previous record, the $1.2 million spent by current mayor Steve Adler) in support of a ballot initiative that would overturn the city council’s regulations on ridesharing services, which would allow the companies to employ drivers without fingerprint background checks. Despite the historic expenditures, the city council regulations were affirmed by Austin voters—and Uber and Lyft sent a message to the rest of the country when they exited Austin within days of the vote.
Now, though, Uber and Lyft are coming back to Austin. There’s a lot to unpack here, so let’s dive in.
Why are they coming back now?
This one’s easy: they got what they wanted. Uber and Lyft wanted to be able to operate in Austin without fingerprint background checks, and now they can.
Did Austin City Council change the regulations?
Nope. Although the people of Austin spoke loudly and clearly in defeating Proposition 1 by 11 points just over a year ago, the Texas Lege spoke louder. House Bill 100, which establishes statewide regulations over ridesharing and supersedes local ordinances, is expected to be signed into law on Monday. Uber and Lyft will resume operations in Austin on the same day. The bill also affects local ordinances in Corpus Christi, Galveston, Houston, and other cities that regulated what sort of background checks drivers had to go through.
Does that mean that Uber and Lyft can come back to those cities, too?
Well, Uber never actually left Houston, despite the city having regulations similar to the ones in Austin. Lyft did, though, and early indications are that they’re looking to come back, though they haven’t announced official plans. We’d expect to see them both operating in every city in the state now that the regulation issue has been resolved. But Austin was the flashpoint for this issue last year, and this was always as much about optics as it was about transportation, so announcing a triumphant return to Austin is a bigger deal for Uber and Lyft than saying “btw, we’ll be in Corpus Christi soon too.”
So this means people in Austin can finally rejoin modern society, right?
That’s certainly how visitors who freaked at SXSW in March will feel, yeah. For people who live in Austin, though, this doesn’t actually change too much. The city continued moving pretty well without Uber and Lyft. Alternatives popped up. Both the locally-grown non-profit RideAustin and the Boston-based Fasten seized the moment to prove that most of what Uber and Lyft brought to both drivers and passengers could be easily replicated, and they weren’t alone—apps from Fare to Wingz to InstaRyde to GetMe and more offered similar functionality, even if none of them achieved the same market saturation that RideAustin and Fasten seemed to. If you’re flying into Austin-Bergstrom and you’re used to grabbing an Uber to get to your Airbnb, then congrats—you don’t have to download a new app. If you’re a UT student who taps on her phone to get a ride home from Sixth Street on Friday nights, your life isn’t gonna change much.
What happens to those companies that popped up over the past year?
Tough to say! Fasten likes to talk tough—CEO Kirill Evdakov told the Austin American-Statesman that the question of how his company will survive is the wrong question. “The right question is, ‘How will Uber and Lyft win back drivers and customers after leaving them high and dry last year?'” he told the paper. RideAustin CEO Andy Tryba was more sober, explaining that if the company drops from the 50,000-70,000 rides it gives each week right now to fewer than 20,000, it’ll probably shut down.
Evdakov’s point is valid—there is likely to be some bad blood between Uber and Lyft and the Austin community. But also, what really matters is the money. The two companies subsidize a lot of the cost of each ride—Uber’s investors pay as much as 59 percent of the real costs—and that’s to operate in cities where each company’s chief competition is each other. In Austin, if Uber and Lyft want to return to the status quo, they could well end up subsidizing an even larger portion of each ride to make sure that their apps are significantly cheaper than RideAustin, Fasten, or any of the others.
So RIP RideAustin and Fasten, then?
Hang on just a second. It’ll be easy for Uber and Lyft to win over the current companies’ passengers just by offering better prices. It’ll be a bigger challenge to win over the drivers. Uber and Lyft do a delicate dance in balancing how they pay their drivers versus how they charge their passengers, and it’s a lot easier for the two to pull that off when they’re the only game in town. (“If you don’t like Uber, go for Lyft” is a successful marketing approach for Lyft, but it’s not an example of the sort of robust competition that can really alter a market’s landscape.) Uber has real problems with how it pays its drivers, and neither company offers anywhere close to the same rate that RideAustin and Fasten do. Lyft takes 20 percent of each ride, while Fasten takes $0.99 flat. Furthermore, let’s get hypothetical for a second—if Lyft is giving you the same ride for $8 that it costs $20 to get from one of the existing companies, that means the driver gets $5.40 for that trip, instead of $19. Who would you drive for?
This sounds complicated.
Boy howdy, does it. We wouldn’t bet against Uber and Lyft figuring this stuff out—they’re immensely well-financed and adept in dealing with complicated situations. Maybe they eat big losses and pay drivers the same that they make from the other companies for a while, even as they keep prices low for passengers. Maybe they use the sort of psychological incentives they’ve developed after years of operating and a zillion rides to ensure that what drivers lose in per-ride share, they make up in bulk. Maybe the promise of cheaper rides means that passengers stop opening their other apps at all, and drivers are forced to go to Uber or Lyft. It’s hard to say. But this is a peculiar situation—Uber and Lyft will be entering the city with huge financial advantages over the competition, but without the sort of home-court advantage that they enjoy in literally every other city in the country. Passengers and drivers already have options that Uber and Lyft can’t “disrupt” in the same way that they did the conventional transportation systems (i.e., taxis) when they first launched. With that in mind, can they convince Austin that they bring something more valuable to the passenger-driver transaction than they’re getting from RideAustin, Fasten, and the rest? If you want to see what happens next, don’t just watch the passengers—watch the drivers too.