General BackgroundLyft is based in San Francisco, California. Since its establishment in2012 Lyft has now been operating in more than 300 cities in the United States.In 2016 Lyft recorded a total of 160 million rides and the company providessince the summer of 2017 one million rides a day. The market share in theUnited States of Lyft is approximately 25% with Uber as its biggest competitor.
The founders of Lyft are Logan Green and John Zimmer. In 2007, they started aride-sharing company called Zimride, focussed on college campuses in thecountry. In may 2013 they changed the name to Lyft Inc. and their focus shiftedto ride-hailing within cities (Lyft Inc., 2017). Lyft is a transportation company whichoffers customers a ride from point A to point B. Lyft is matching supply anddemand for taxi rides on a digital platform. Drivers and customers are usingthe same mobile app to make use of the services of Lyft.
Via this matchingsystem, Lyft is contributing to the sharing economy. The main idea is toconnect the driver with the consumer in order to fulfil each other’s needs; thedrivers want to earn money and the passengers wish to go toward theirdestination. When opening the app, the driver selects in the top right cornerthe steering wheel icon. In this way, he activates the driver mode. At themoment the driver receives a request, he only gets fifteen seconds to acceptthis before another Lyft-driver will be given the passenger. Next, when thechauffeur picks up a customer, he has to select the ‘Tap to Arrive’ button andfrom now on the passengers’ ride and bill timer start.
After the ride isfinished, the Lyft app gives the driver and passenger the option to rate each otheron a 1 to 5-star basis. This rating system is an important tool in Lyft’sbusiness model because this gives the company a clear view of the people whoare working for them. When drivers have delivered a passenger, their money willbe transferred to the driver’s Lyft-account.
The chauffeurs are getting paidweekly, in favour of the fact that the drivers do not have to wait a wholemonth to receive their money from the services they provided. The transportationcompany charges a 20 percent commission fee on the drivers’ earnings. Theadditional 80 percent goes directly to the driver. Drivers of Lyft are gettingpaid on a minute and mile basis and customers can tip them in case they want it.There is a choice between a $1, $2 or $5 tip. The company also makes use of abonus system. During peak hours, drivers can earn an extra bonus if they finisha streak of rides within a certain amount of hours (Lyft Inc., 2017).
Lyft has been one of the fastest growingcompanies of the United States and is valued at $5,5 billion. To accomplishthis, they have clear restrictions. To become a driver at Lyft you must be 21years old and at least have been in possession of a driver license for oneyear.
Besides, you have to own an IPhone or Android phone to make use of Lyft’smobile app. The driver will undergo a criminal background check and a drivingrecord check. When it seems that drivers do not meet the standards of Lyft,they can be declined to become a driver. Lyft offers three waysof travelling: Lyft, Lyft Plus and Lyft Line. The first category is the basicform of travelling by a five-seater car, this is the most popular requestaccording to Lyft’s data. When a consumer wants to order a ride with a biggergroup it is possible to request a ride with Lyft Plus.
This is most of the timea seven-seater car. The last type of transportation is Lyft Line. Lyft Line isthe cheapest option of travelling with Lyft. It matches passengers that aregoing to the same destination on a pre-specified route. It resembles public transport,but the difference is that the ride will be realised by Lyft.
Additionally, Lyft is making use ofdynamic pricing. This is in contrast with the fixed pricing in the traditionaltaxi industry, based only on time and distance. Lyft is working with a baserate price system, but when quantity demanded exceeds quantity supplied ithappens that prices will rise. This will be determined by the mobile app’salgorithm (Horpedahl, 2015). Thissystem provides a stimulus for both drivers and customers.
Because for driversit is attractive to drive during those peak hours or to go the specific busyneighbourhoods (Hall,Kendrick & Nosko, 2015). Onthe contrary, for customers, it is an incentive to avoid travelling during thepeak hours. Another aspect of dynamic pricing is the fact that drivers andcustomers don’t need to know why the price increase is happening, but thesystem causes them to act in a way that is socially beneficial accepted. Thisresembles the theory of Hayek (1945)in “The Use of Knowledge in Society”, where he describes the fact that we don’t need to have access to all knowledgeto make the right decisions; the price is sufficient since it gives us exactlythe information that we need. Discussion Inthis part of the essay, academic papers will be discussed to examine theinfluence of Lyft on the demand of the taxi market in the United States. In the beginning of the twentieth century, theNew York Taxicab Company started to buy taxicabs from France with a gasolineengine.
They imported around six hundred cars, but this could still not make abig difference in the streets of the city. After twenty years the taximeter wasintroduced in the cabs. From that point, it was possible to charge the milestravelled and the time that had passed by. The taxi industry was thriving, butat that time it was especially something for the wealthier people due to thehigh price per mile. During the “Roaring Twenties” in America, the famous blackand yellow taxicabs appeared on the streets.
Due to the rising popularity ofthe taxi, it led to negative results as well. Cab drivers suffered fromunethical employment practices and customers were conned by unauthorizeddrivers. To avoid such practices, the municipality of New York insisted topaint all taxi’s yellow in order to recognize the officially declared taxidrivers from the unauthorized drivers (Bond, 2015). Thetaxi industry has experienced a massive growth since its introduction inAmerica at the end of the nineteenth century. Research of Bond (2015) showsthat just in New York City there are more than 40,000 drivers and a total of12,187 taxis. More than 200 million passengers are being transported overalmost 800 million miles per year. With an annual revenue of more than $11billion dollars, the taxi industry is a vital element in the American society (Isaac,2015).
The status quo of the industry remained unchanged until, in 2009, atransportation company named Uber changed it all. Followed after Lyft’sentrance in 2012, the taxi industry was switching to a new era with fullcompletion of the digital market. Thecab drivers in New York are working with a medallion system. Medallions arepermits for cab drivers to have the right to pick up passengers. Without suchpermit, it is illegal to pick up passengers. In 2010, the price of onemedallion cost around 1 million U.S.
dollars. But due to the upcoming on-demandride services, the prices of those medallions fell. The demand in the taxiindustry happens to be lower than a few years before, because seven yearslater, in March 2017, a taxi permit was sold for $300,000; a price fall of 70%(Agovino, 2017).In SanFrancisco, the birthplace of Lyft, the taxi industry has experienced a greatimpact on this new ride-hailing company. Hara Associate Inc. (2014) claimsthat the Municipal Transportation Company of San Francisco recorded in 2014 anaverage of 504 taxi rides per month, in contrast to 1,424 trips per month in2012. The San Francisco taxicab industry underwent a 65% drop in usage in justtwo years. In contrast toNew York City and San Francisco the capital of the United States has experienceda less severe impact on their taxi market (Cramer & Krueger, 2016).
Washington, D.C. took a relatively free approach to embrace ride sourcingcompanies like Lyft. The cab industry in this city is not regulated via demedallion system as dealt with in New York. According to an article in theWashington Post (Badger, 2014), the District of Columbia seems to havethe freest transportation market in the country. When the city’s councilapproved the Vehicle-for-Hire Innovation Act four years ago the councilencountered a lot of criticism from taxi drivers.
The Act allows free play forthe digital transportation companies, whereupon the cab drivers found thatthose firms would gain an unfair competitive advantage. The drivers fear thatLyft can charge cheaper tariffs since they are not obliged to follow the sameregulations and rules as cab drivers.A study (Rayle,Shaheen, Chan, Dai & Cervero, 2014) showed that Lyft and other on-demand taxi servicesare seizing the opportunities with the upcoming digital generation. Thepassengers of ride-hailing services turned out to be younger than users ofregular taxi’s.
Waiting-lines were considerably shorter and more consistent aswell. Due to the rating system of Lyft, passengers felt saver since they knewtheir driver via the mobile app. Inaddition to this, the big controversy between this current digital platform andthe relatively old-fashioned taxi industry is the fact that drivers of Lyft donot require a medallion or any other sort of authorization to pick uppassengers, because of the fact that they are not employees of a taxi companybut independent workers employed by Lyft.
The biggest advantage when havingindependent contractors is the fact that it will save the company a lot ofmoney. For example, when hiring an employee, it happens that the company willhave to train him to master a certain skill, but in the case of an independentcontractor those costs are eliminated. The reason whyLyft has succeeded to become such a transportation network company in thesharing economy and successfully is competing with the taxicab industry is aresult of multiple factors (Isaac, 2015).
One of those factors is that thecompany attracts workers that are found in a depressed labour market. ArneKalleberg (2000)describes the people who currentlydon’t have a job and are willing to raise their wage by trying somethingdifferent than before. She illustrates the transition from the ‘age of security’ to the ‘age of flexibility’. The point is thatnot only ex-cab drivers are willing to work for Lyft, but research (Friedman,2014) shows that most of the independent contractors have lost their job inthe crisis several years before and are now ready for a new type of work area.
So, this has made possible the substantial growth of Lyft and their ability tocompete with the cab industry and other ride-hailing services.