A lot of ink has been spilled on trying to explain why Uber and Lyft can never be profitable. Different theories were reinforced after the ride-hailing service giants went public. Some of them were insightful and some were just really out there.
As a former engineer in mobility services and a general car enthusiast, I am torn between the efficiency and the sustainability of shared mobility, and the freedom of owning a car. So, I try to break it down analytically.
Disclaimer: I won’t be talking a lot about autonomous cars as they will not be a solution in every region and every urban setting for a foreseeable future. It’s a speculation which everyone is welcome to bet on.
Better utility with ride-share
One of the most logical argument in favor of ride-share against personal ownership has been the wasted utility of a personal car. By some studies, personal cars are used only 5% of the life they remain useful. That’s staggering but not surprising given cars are just a tool to get from one place to another, and not an essential human activity in itself. In that context, it becomes more acceptable. The average mileage of personal car in US is 13,476 miles a year.
But taxis are a model where cars can be utilized by more than one household and thus reduces the cost of ownership and maintenance per person while delivering the same value. The average mileage of taxi cab in New York is 70,000 miles but is much lower in the rest of the country and the world including London, around 25000 miles. If we take a median figure and conservatively round it up to 50000 miles, there’s still the question of useful miles. Unlike a personal car, the taxi has to run empty to find fares and pick-up passengers. So the useful occupied miles are still lower than expected. The fact that a driver cannot operate their vehicle 24 hours is another limitation for the full utility of Taxis especially in ride-share (cue the autonomous vehicle fandom).
Lost productivity in personal mobility
The other argument is personal vehicles eat into your productive time. With ride-hailing you can use that time much better or productively. But can you? Other than making phone calls and few emails, there is not much you are adding to your day. Certainly not to the full potential in the setting of a vehicle currently (cue the fandom again). Also, you have to weight it against the value of the work you do. A great study from my alma mater UT Austin by Davidson and Tsai illustrate this point beautifully. The study looks at the market value of your time but it is a matter of how valuable your ‘partial output’ is.
Freedom from parking
A last solid argument against personal ownership is peace of mind. Ride-share allows you to never think of parking again, or the traffic, or any umpteen things that take up your time when you own a car.
But humans are irrational. You don’t weight these costs as objectively as you should. Plus, can you put a price to the freedom of an impulsive drive to your favorite spot after a stressful week? And not all the cities have parking hassles. Sure, if you live in San Francisco or New York but decades of city planning has ensured parking all over the country in most cities.
Cost of mobility
So, I did some basic calculations to find cost per mile per person that you can see here. The results were as follows.
- Below I have calculated lost productivity as per national average wage. I have also used cost considerations of ride-share from S-1 declaration of Lyft which is not exactly churning profit even at scale. The cost difference is not a lot.
2. But how many of us making rational decisions and how many of us really not losing productivity in a taxi. If lost productivity is not included, then:
Of course, humans will be somewhere between rational and irrational. It will work for some and not work for some.
Way to true value and profitability
So, in my analysis and opinion, ride-hailing does not reduce the cost of mobility dramatically, nor does it add any tangible value significantly.
So until we have the ultimate solution in Autonomous Mobility System that works for everyone (doff my hat to the fandom), here are a few things that are needed. I’ll be on lookout for innovations that do the following:
- Increase the value in ride-hailing through added productivity inside the vehicle. Redesign vehicles for increased productivity and not just comfort of passengers. If there are more essential things a passenger can do than just commute inside the car, the more lucrative it becomes.
- Increase the value in ride-hailing through added productivity outside the vehicle. Right now, it takes taxis just as much time to commute as does a personal vehicle. Paying cities for specialized lanes is an easy solution that comes to the mind where scale can be used to bargain better rates than individual express lane charges.
Ride-hailing market is ripe for another great idea. Autonomous vehicles will come to the rescue of ride-share for a sizable population, but it may come a bit too late to most of the users to survive ride-sharing in its current form. I also look forward to innovations that add value locally. Something that will work in India may not work in Europe. It’s a very exciting space to watch.