Carpooling: The comeback kid

Aniket Ambekar
Nov 30, 2017 · 10 min read

“Carpooling”, as a concept, is pretty old and dates back as long as the invention of the automobile itself. In fact, it experienced its hey-days in 1970s where around 20% of commuters in the US used carpooling as a mode to commute to work and back home. But since 1980, it has seen a sharp decline to an extent that the share of carpooling got reduced to mere 5% and below. So, what exactly happened between 1980 and until recently ? Possible reasons include:

  • Change from manufacturing economy to digital meant offices moved to city centers or in proximity to people homes
  • Reduced fuel prices meant that cost savings was not a factor any longer
  • Work from home became an optional way of working

But since 2015, there is an increasing trend towards carpooling usage and many tech companies are looking to seize this opportunity. Looking at the US census data, we can see there has been sharp increase in the share of carpooling:

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Source: Citylab

The key reasons for this comeback is due to technological advancements where we now have efficient & powerful algorithms that can match supply and demand taking the various routes into consideration. This makes using the service convenient and hence becomes a viable option for the consumer. The purpose of this article is to have a high level overview on carpooling, companies that are trying to solve the problem, challenges & potential suggestions.

Carpooling vs Ridesharing

Why Carpooling now ?

Moreover, there is pressure from governments to reduce the introduction of new cars into cities: Singapore Govt. recently decided to reduce the new car growth rate from 0.25% to 0%, US has the HOV lanes, etc. All these things are supporting the cause of carpooling services. Hence, carpooling is being viewed as a complementary mode of transport alongside other upcoming options that can help in reduction of congestion & pollution.

Competitive Landscape

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In Germany, Wunder Carpool and Flinc lead the way in carpooling services. In fact, Wunder is based in Germany but does not have its operations in Germany but in Philippines & India. Flinc, acquired by Daimler, is the only well known service operating in Germany in almost all the cities.

In France, the competition is tight with multiple start-ups vying for the market share. BlaBlaCar, a well known & well funded company, mainly operates on long distance car pooling. Others such as Wayzup, Karos, Zify are the carpooling services for cities.

In the United States also there are multiple companies involved in carpooling: Scoop, Zimride, Waze from Google, Zookks are all operating their services in certain cities of the US. Waze and Zimride are already acquired by Google and Enterprise Holdings (a well known car rental company) respectively. On the other hand, Scoop has an investment from German car manufacturer BMW. So there is a lot of consolidation happening very quickly in this market already.

Although there are various advantages in using carpooling, the major question is are these companies sustainable as a business. Is there enough opportunity to earn revenue or create new revenue streams? This is a million dollar question and lets look at the various business models operated by these companies.

Business Model Analysis

Obviously, there is hardly any way currently to monetize the B2C part of the business because majority or all of the revenue earned by carpooling goes directly to the driver. Wunder Carpool tries to get a commission (in terms of administrative expenses)on the payments that are done via their wallet. But the overall transaction amount in carpooling is very minimal and hence to have any impact on the top line there needs to be massive amount of users using the service which makes it not a feasible option for companies to monetize.

Corporates are a good customer segment mainly because it saves them huge amount of money by incentivizing their employees to use carpooling at subsidized rates. In this way, they can eliminate costs of mobility perks (public transport fares) that are handed over to employees and moreover save huge costs on parking spaces. Human resources tackle with the problems of their employee well-being and carpooling makes employees to relax and have better day at work thus increasing their efficiency.

Wunder, Wazyup, Scoop, Karos are partnering with corporates to set up and support their mobility needs. Other companies such as Flinc, Waze, Zify are still pretty much consumer focused.

Sales Channels/Delivery: All companies are mobile-first, but interestingly Flinc offers desktop solution to hitch the ride. For the companies partnering with corporates, a SaaS solution is deployed where the employers can view reporting & analytics, co-ordinate internal marketing & communication, overall utilization and thus realize cost-savings.

Value Proposition: There are multiple ways companies are trying to differentiate themselves.

  • Wayzup offers free rides to those who already have a Public Transport card. They have partnered with public transit companies to solve the first & last mile issues with public transport.
  • Wunder Carpool allows drivers to set the prices per km as per their own wish and also allows riders to top-up their virtual wallet which they can use for seamless payments for each ride. It also puts lot of emphasis on community building and sharing of information amongst the community and is trying to become a community driven service.
  • Scoop does the automated vehicle history checks and review system to ensure the cars/drivers with whom you will drive are safe. Safety is one of the key differentiators used here which makes sense since there is a lot of hesitation when going on ride with an unknown person. They also provide a guaranteed home rides and offer reimbursements if for some reason (conditions apply) the user is unable to find a ride back home.

Revenue Model: As mentioned early, most of the revenue is generated from the B2B model of the business. The B2C model is mainly not-for-profit business where neither the drivers can use the service to earn profit nor companies have any scope to earn. Although companies such as Wunder may eventually try to get a commission on each transaction made via their ‘Wunder Wallet’ and that is an opportunity to add to their revenue stream.

Challenges to Carpooling

  • Communication of Value Proposition: Cost savings are no longer a way to attract users. Since the avg. earnings have increased and fuel costs are lower than ever, the cost savings by sharing fuel costs are negligible. Instead the challenge is to communicate the advantages of carpooling in a different way and focus on community building, new network opportunities, etc. values of carpooling.
  • Trust & Human Behaviour: There is still a lot of attachment with the car a person owns and this attachment proves to be a big hurdle in sharing the vehicle with unknown people. Every one has its own preferences (calm rides, music preferences, cleanliness, etc.) and the possibility that car owners may encounter with someone that does not align to their expectations acts as a big hurdle in using the service. Especially, in the digital era when everyone is consumed in their digital devices during their commute, people needing privacy will not prefer carpooling shared rides.
  • Competition with Ride Sharing companies: There are multiple ride sharing companies who are now collaborating with public transport companies (CleverShuttle, Door2Door in Germany)to solve the first and last mile problems. This can prove to be challenging especially because ride sharing companies excel in on-demand, preferred vehicles and in-car experiences and may solve the current hurdle of users being not able to smoothly reach their workplace.
  • Dependency on others: One big factor, as a rider, is that you are completely dependent on the availability of the driver. If the driver is busy at work or gets sick or encounters emergency then your plans may get disturbed. The sheer fact that you become dependent on others for your travel needs makes such a service unattractive.
  • Premise: The entire idea of carpooling is based on the premise that people working in the same companies or neighbouring companies also live in nearby neighbourhoods. Although, it might be true in some cases but cannot be taken for granted completely. This makes matching the correct vehicle with the person without long detour difficult and no driver would like to prolong their journey during key office hours by driving an additional mile. Also, if there are no door-to-door pick-ups possible then the users again have the problem of covering the first mile on their own.
  • Autonomous Vehicles & E-mobility: With the advent of autonomous & electric cars, it is estimated to have higher efficiency and utilization of fleets and would make the transportation faster, convenient and cheaper. Will carpooling exist in the automated car world is uncertain. Convenience is a big factor in disrupting any model and autonomous vehicles have the potential to do exactly that.

Potential Suggestions

  • Providing a safe-net [Users]: To reduce the dependency and uncertainty involved with carpooling, companies should provide a safe-net or in other words alternative options to complete their journey. Alongwith car-pooling information, if they are also shown other possible modes of transport then consumer has higher independence on the choice of commute and also a fallback option readily available.
  • Move closer towards journey time[Product]: The more closer the solution is towards the actual journey time of the user, the more flexibility is provided to the user, that would result in greater satisfaction of the product. Riders will get matched with the correct carpool even though they decide on late and drivers will still continue to find someone to share the ride even if someone cancels at the last moment
  • Community Effect[Product]: The carpooling has immense ‘community effects’. If there is a small group of people who have enjoyed carpooling, they will continue to carpool and would not try to use other services esp. because switching costs would mean leaving the comfort formed by new connections. To increase ‘community effects’, it should be possible to form respective groups and chat platforms to co-ordinate various activities. Different groups for different purposes can also serve well, eg. after-work tennis group, after-work drinks group, etc. would improve the bonding and thus stickiness to the platform
  • Partner with Public Transport [Revenue]: Carpooling companies, with their route optimization and matching algorithms can partner with Public Transport companies to solve their first and last mile problems and thus expand the revenue streams
  • Cross-integration [Revenue]: Companies can license their proprietary software to pick-up & drop-off services (such as mail delivery) to realize new revenues. Since companies have developed advanced algorithms to match people along an optimized route, the solution is very attractive to logistics and delivery companies
  • New Services [Revenue]: I discussed earlier that companies assumed that people who work at same place, also potentially lived nearby and can potentially be a false premise. But this is true for neighbouring families whose kids go to the same school or school in the same vicinity. This would mean that car pooling can be adopted very well in dropping off school kids of neighbouring families


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