Two big differences between taxis and Uber/Lyft, which explain their massive losses and weren’t mentioned by the article:

1. They provide insurance: It’s estimated that around half of Lyft’s operating expenses are for insurance [1], which in their filings is mainly under Cost of Revenue but some settlement expenses and other non-mandatory insurance coverage would be under General & Administrative [2] [3]. This was pretty surprising to me, as I never thought it’d be this much.

2. Costly driver incentives: Technically this is under Sales & Marketing, which is around 10% of expenses [2] [3]. However, Uber/Lyft can choose how much of a commission to take so that the driver keeps driving, so the incentive would then come at the cost of lower revenue.

These are vital to their operations because:

1. Commercial insurance could cost $400-700+ a month [4]; taxi drivers pay this themselves, but Uber/Lyft drivers don’t, paying a much smaller surcharge to their personal auto insurance because Uber/Lyft cover third-party liability during rides.

2. They need lots of drivers driving around in order to provide short wait-times. Outside of city centres, the wait-times for taxis can be pretty long, often requiring a reservation made hours in advance. Uber/Lyft gave people the freedom of owning a car at a price usually not more than $5-15 over a transit fare.

But being able to provide a ride in just a few minutes anywhere in a city even late at night isn't free. For instance, in NYC around 41% of driver time in 2018 was driving around waiting for a ride [5], which they aren't paid for. If there are plenty of drivers, Uber/Lyft can profit off them and let them churn, but if they're needed to properly serve an area or time-of-day (ie. keep wait-times low), that's where retention bonuses and letting them keep more of the fare come in as to motivate them to keep driving.

So in a way, when you're taking or driving a profitable ride where Uber/Lyft are making a large margin (like airport-to-downtown rides), you're subsidizing someone who picked-up or waited five minutes for a ride late at night outside some suburban bar. It's the latter kind of trips that most people wouldn't take a taxi for, having previously been made on transit, a personal car, carpooling, or not made at all.

This is a bit like how public transit works. The customers travelling on packed buses/trains in peaks subsidize those on the emptier late-night buses/trains. But remove that late-night service and some of those customers will buy a car and stop taking transit altogether.

As Uber/Lyft are forced to become profitable during a labour shortage, the profitable trips are becoming more expensive (often more than airport taxis) and the less-profitable trips are getting longer wait-times as less is being spent on driver retention (along with higher prices but maybe not as much because of the increased price-sensitivity of those trips).

This model was unsustainable from the start. Even with AVs, their R&D would explode and they’d have to assume the full cost of operating, maintaining, and insuring their fleet, all of which are currently offloaded to their drivers.

1: https://www.insurancejournal.com/news/national/2019/10/31/54... 2: https://investor.lyft.com/news-and-events/news/news-details/... 3: https://www.sec.gov/Archives/edgar/data/1759509/000156459019... (26-27) 4: https://www.carinsurancecomparison.com/taxi-car-insurance/ 5: https://www.reuters.com/article/us-uber-new-york-idUSKBN1YR1...

Sidenote: Am a transit planner and software dev, so researching ridehailing’s pretty interesting/relevant to me.

user:	eddy162
created:	February 25, 2022
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