General California. Since its establishment in 2012 Lyft

General Background

Lyft is based in San Francisco, California. Since its establishment in
2012 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 provides
since the summer of 2017 one million rides a day. The market share in the
United 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 a
ride-sharing company called Zimride, focussed on college campuses in the
country. In may 2013 they changed the name to Lyft Inc. and their focus shifted
to ride-hailing within cities (Lyft Inc., 2017).

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

Lyft is a transportation company which
offers customers a ride from point A to point B. Lyft is matching supply and
demand for taxi rides on a digital platform. Drivers and customers are using
the same mobile app to make use of the services of Lyft. Via this matching
system, Lyft is contributing to the sharing economy. The main idea is to
connect the driver with the consumer in order to fulfil each other’s needs; the
drivers want to earn money and the passengers wish to go toward their
destination. When opening the app, the driver selects in the top right corner
the steering wheel icon. In this way, he activates the driver mode. At the
moment the driver receives a request, he only gets fifteen seconds to accept
this before another Lyft-driver will be given the passenger. Next, when the
chauffeur picks up a customer, he has to select the ‘Tap to Arrive’ button and
from now on the passengers’ ride and bill timer start. After the ride is
finished, the Lyft app gives the driver and passenger the option to rate each other
on a 1 to 5-star basis. This rating system is an important tool in Lyft’s
business model because this gives the company a clear view of the people who
are working for them. When drivers have delivered a passenger, their money will
be transferred to the driver’s Lyft-account. The chauffeurs are getting paid
weekly, in favour of the fact that the drivers do not have to wait a whole
month to receive their money from the services they provided.

            The transportation
company charges a 20 percent commission fee on the drivers’ earnings. The
additional 80 percent goes directly to the driver. Drivers of Lyft are getting
paid 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 a
bonus system. During peak hours, drivers can earn an extra bonus if they finish
a streak of rides within a certain amount of hours (Lyft Inc., 2017).

Lyft has been one of the fastest growing
companies of the United States and is valued at $5,5 billion. To accomplish
this, they have clear restrictions. To become a driver at Lyft you must be 21
years old and at least have been in possession of a driver license for one
year. Besides, you have to own an IPhone or Android phone to make use of Lyft’s
mobile app. The driver will undergo a criminal background check and a driving
record check. When it seems that drivers do not meet the standards of Lyft,
they can be declined to become a driver.

            Lyft offers three ways
of travelling: Lyft, Lyft Plus and Lyft Line. The first category is the basic
form of travelling by a five-seater car, this is the most popular request
according to Lyft’s data. When a consumer wants to order a ride with a bigger
group it is possible to request a ride with Lyft Plus. This is most of the time
a seven-seater car. The last type of transportation is Lyft Line. Lyft Line is
the cheapest option of travelling with Lyft. It matches passengers that are
going 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 of
dynamic pricing. This is in contrast with the fixed pricing in the traditional
taxi industry, based only on time and distance. Lyft is working with a base
rate price system, but when quantity demanded exceeds quantity supplied it
happens that prices will rise. This will be determined by the mobile app’s
algorithm (Horpedahl, 2015). This
system provides a stimulus for both drivers and customers. Because for drivers
it is attractive to drive during those peak hours or to go the specific busy
neighbourhoods (Hall,
Kendrick & Nosko, 2015). On
the contrary, for customers, it is an incentive to avoid travelling during the
peak hours. Another aspect of dynamic pricing is the fact that drivers and
customers don’t need to know why the price increase is happening, but the
system causes them to act in a way that is socially beneficial accepted. This
resembles 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 knowledge
to make the right decisions; the price is sufficient since it gives us exactly
the information that we need.

 

Discussion
In
this part of the essay, academic papers will be discussed to examine the
influence of Lyft on the demand of the taxi market in the United States.

In the beginning of the twentieth century, the
New York Taxicab Company started to buy taxicabs from France with a gasoline
engine. They imported around six hundred cars, but this could still not make a
big difference in the streets of the city. After twenty years the taximeter was
introduced in the cabs. From that point, it was possible to charge the miles
travelled and the time that had passed by. The taxi industry was thriving, but
at that time it was especially something for the wealthier people due to the
high price per mile. During the “Roaring Twenties” in America, the famous black
and yellow taxicabs appeared on the streets. Due to the rising popularity of
the taxi, it led to negative results as well. Cab drivers suffered from
unethical employment practices and customers were conned by unauthorized
drivers. To avoid such practices, the municipality of New York insisted to
paint all taxi’s yellow in order to recognize the officially declared taxi
drivers from the unauthorized drivers (Bond, 2015).

            The
taxi industry has experienced a massive growth since its introduction in
America at the end of the nineteenth century. Research of Bond (2015) shows
that just in New York City there are more than 40,000 drivers and a total of
12,187 taxis. More than 200 million passengers are being transported over
almost 800 million miles per year. With an annual revenue of more than $11
billion 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, a
transportation company named Uber changed it all. Followed after Lyft’s
entrance in 2012, the taxi industry was switching to a new era with full
completion of the digital market.

            The
cab drivers in New York are working with a medallion system. Medallions are
permits for cab drivers to have the right to pick up passengers. Without such
permit, it is illegal to pick up passengers. In 2010, the price of one
medallion cost around 1 million U.S. dollars. But due to the upcoming on-demand
ride services, the prices of those medallions fell. The demand in the taxi
industry happens to be lower than a few years before, because seven years
later, in March 2017, a taxi permit was sold for $300,000; a price fall of 70%
(Agovino, 2017).

In San
Francisco, the birthplace of Lyft, the taxi industry has experienced a great
impact on this new ride-hailing company. Hara Associate Inc. (2014) claims
that the Municipal Transportation Company of San Francisco recorded in 2014 an
average of 504 taxi rides per month, in contrast to 1,424 trips per month in
2012. The San Francisco taxicab industry underwent a 65% drop in usage in just
two years.

In contrast to
New York City and San Francisco the capital of the United States has experienced
a less severe impact on their taxi market (Cramer & Krueger, 2016).
Washington, D.C. took a relatively free approach to embrace ride sourcing
companies like Lyft. The cab industry in this city is not regulated via de
medallion system as dealt with in New York. According to an article in the
Washington Post (Badger, 2014), the District of Columbia seems to have
the freest transportation market in the country. When the city’s council
approved the Vehicle-for-Hire Innovation Act four years ago the council
encountered a lot of criticism from taxi drivers. The Act allows free play for
the digital transportation companies, whereupon the cab drivers found that
those firms would gain an unfair competitive advantage. The drivers fear that
Lyft can charge cheaper tariffs since they are not obliged to follow the same
regulations and rules as cab drivers.

A study (Rayle,
Shaheen, Chan, Dai & Cervero, 2014) showed that Lyft and other on-demand taxi services
are seizing the opportunities with the upcoming digital generation. The
passengers of ride-hailing services turned out to be younger than users of
regular taxi’s. Waiting-lines were considerably shorter and more consistent as
well. Due to the rating system of Lyft, passengers felt saver since they knew
their driver via the mobile app.
            In
addition to this, the big controversy between this current digital platform and
the relatively old-fashioned taxi industry is the fact that drivers of Lyft do
not require a medallion or any other sort of authorization to pick up
passengers, because of the fact that they are not employees of a taxi company
but independent workers employed by Lyft. The biggest advantage when having
independent contractors is the fact that it will save the company a lot of
money. For example, when hiring an employee, it happens that the company will
have to train him to master a certain skill, but in the case of an independent
contractor those costs are eliminated.

The reason why
Lyft has succeeded to become such a transportation network company in the
sharing economy and successfully is competing with the taxicab industry is a
result of multiple factors (Isaac, 2015). One of those factors is that the
company attracts workers that are found in a depressed labour market. Arne
Kalleberg (2000)
describes the people who currently
don’t have a job and are willing to raise their wage by trying something
different than before. She illustrates the transition from the ‘age of security’ to the ‘age of flexibility’. The point is that
not 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 in
the 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 to
compete with the cab industry and other ride-hailing services. 

Author:

x

Hi!
I'm Eileen!

Would you like to get a custom essay? How about receiving a customized one?

Check it out