Uber’s Attempt to Block Seattle Drivers from Unionizing Has Failed

Sum and Substance: The first leg of 2017 has been a public relations disaster unlike any other in Uber’s six or so years of existence — and for the ride-hail behemoth with a history of public scandals, that’s saying something. So it stands to reason that Lyft — the perennial runner-up to Uber — should benefit from its competitor’s perceived loss. 

There isn’t a penalty for switching services for either riders or drivers, after all. Drivers are independent contractors and riders don’t typically buy into any contract to use either platform, unless they’ve bought one of the short-term, flat-rate passes both companies are now offering. Even then, it’s fairly easy to ditch either company once those passes expire. That said, though it stands to reason it would, Uber’s current mess isn’t necessarily a gift for Lyft.

Why? For one thing, Uber’s marketshare is huge. While the number of deleted accounts is more than the oft-maligned ride-hail company — now valued at close to $70 billion — has ever seen, sources say Uber typically gets around 200,000 new accounts added in one week in just a few of its markets. Second, ride-hail platforms are two-sided marketplaces. Drivers have long complained of some of Uber’s practices, like its lack of a tipping option and its high commission rates. More often than not, protesting drivers target their complaints at Uber, not Lyft. That’s all to say, drivers have tried to ditch Uber in favor of other services for years, but it hasn’t worked.

Because drivers, who often drive for multiple apps at a time, will typically take the first ride request they get or will continue to use the app that has the least downtime between rides. That means drivers will go where the riders are. Riders, in turn, will use the service that has the shorter wait times and cheaper prices. In other words, riders will go where there are drivers. 

It’s a constant balancing act for ride-hail companies, which always have to ensure there aren’t too many drivers and too few riders or vice versa. And Uber has gotten good at doing just that. The company has some of its U.S. markets — like San Francisco — mapped down to a one-block radius, and is able to ensure there is just the right amount of supply for the demand. That’s why riders and drivers have stuck with the service in the past, even if it meant giving money to a company they don’t agree with.

What’s adding to the effect is Lyft’s lack of name recognition. Lyft isn’t as well known as Uber is in places outside of New York City, San Francisco, Los Angeles and a few other markets. To mitigate that, the company recently invested in a series of TV spots and has even tapped reality stars like Scott Disick of “Keeping Up With the Kardashians” to promote its service.

But it’s unclear how much of a boon to the company’s business that has been as of yet. It’s not impossible to make some headway against Uber. In New York City, Juno, a ride-hail app started by Viber co-founder Talmon Marco, performed one million rides in a matter of months. The company — which launched in the city in May — performed 20,000 rides a day by September. Compare that to Lyft’s 40,000 rides a day in that month. 

Juno’s pitch was simple: It was good for drivers and cheaper for riders. The company only took 10 percent commission off each ride and charged riders 35 percent less than its competitors. But the model, unsurprisingly, was unsustainable. By September, the company had dropped discounts down to 20 percent. And Marco told Recode it’ll likely do away with the discounts altogether. Today, Juno only offers a 10 percent discount to its riders. 

Lyft can use — and in the past has used — promotions and incentives to lure riders and drivers to its platform. But it can’t be the company’s long-term strategy and also can’t be done in lieu of improving the efficiency of their marketplace. So Uber’s two months from hell may not be a nail in the coffin for the company.

My Take:  I tend to agree with Harry on this one – most passengers really don’t pay attention to the news and few are aware of any of the specifics of the stories that are surfacing. Uber’s initial pitch to investors – ridesharing was and is an industry that exhibits network effects – was and is still valid.  The larger the size of your network, the more valuable your network.  Lyft (and Juno’s) networks are still too small for drivers (and passengers) to switch – except in select markets like San Francisco and others where people are more aware of what’s really going on behind the curtain.

Readers, what did you think of this week’s round up? What do you think of Uber’s tactics against Seattle drivers unionizing, and is unionizing the right step for drivers?

-John @ RSG