An inglorious return to Austin for Uber and Lyft

By A.W. | WASHINGTON, D.C.

UBER and Lyft will make their triumphant return to Austin on Monday. Whether the Texas capital will welcome them back is another matter.

The ride-hailing giants left in a huff a year ago, after Austinites had the temerity to vote in favour of maintaining the city’s requirement that the firms perform fingerprint checks on their drivers, as traditional taxi companies must. The pair have long resisted being held to the same standards as taxis, with an insistence bordering on arrogance. They have also tended to assume that customers had their backs. So it was a rude awakening when, after forcing a city-wide ballot on the issue, and spending close to $9m on their campaign, Uber and Lyft found themselves on the wrong side of the progressive Austin population, which didn’t want to be pushed around by big companies from out of town.

Even so, the city had become reliant on the ride-hailing firms, due to a combination of hedonistic nightlife, urban sprawl and poor public-transit options. So when the Texas legislature passed a bill overriding Austin’s regulations with a more lenient statewide framework governing ride-hailing companies, Uber and Lyft immediately planned their return. They are resuming service in Austin on May 29th, the same day that the governor will sign the bill.

They are not, though, returning to the same city. In their absence, a plethora of smaller, often homegrown, alternatives has sprung up to fill the vacuum. And Austin discovered that it rather liked them.

Uber and Lyft are facing serious competition in a way they have not elsewhere in America. For once, rather than trying to make inroads against their better-known competitors, companies such as RideAustin or Fasten have the advantage of a year’s head start. People have made a habit of using them; now it is Uber and Lyft that must convince residents to change their ways.

That will mean re-converting two sets of constituents. Winning back passengers ought to be the easier part. Uber and Lyft can afford to subsidise their trips heavily in order to gain market share. (A study last year found that customers pay only 41% of the cost of each Uber ride; the company’s investors foot the rest of the bill.) Their upstart rivals don’t have the cash to match the pair in a price war.

But that option only exists to the extent that drivers provide it. And drivers, by most accounts, have been quite happy working for the new companies, which sometimes pay significantly more than their Silicon Valley competitors. As Texas Monthlyexplains:

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?

In fact, the answer isn’t so simple. A $19 fare is nice for drivers, but only if they can get it repeatedly and reliably. If customers are switching to Uber and Lyft, there simply won’t be many of these fares to collect.

That creates something of a chicken-or-egg dilemma. But since there is nothing preventing drivers from working for several ride-hailing companies at the same time, many of them are already signing up to become Uber or Lyft drivers, in addition to their existing affiliations.

So, to rephrase Texas Monthly’s question, if as a passenger you have a choice between a heavily subsidised Uber fare or a more expensive RideAustin one, which would you choose? Uber and Lyft may well find that it will not take long for them to return to their earlier position of dominance. Still, the whole episode pokes holes in the invincibility the duopoly once seemed to possess. They were rescued by a sympathetic state government—this time. But in the future, if they are unwilling to play by the rules established by cities in less friendly states, they could once again find themselves on the outside.