Rethinking Ridehailing: New Models Promise Profits
It’s well-well known that peer-to-peer ridehailing businesses lose prodigious amounts of money. Rides are cheap compared to taxis, and every ride is subsidized by the deep pockets of the businesses’ investors.
Wall Street has soured on the peer-to-peer business model, which is to flood cities with vehicles so that a convenient ride is always at hand. Uber’s largest investor, Softbank, has been called a “graveyard of broken tech companies” (it is also a primary backer of troubled workspace company WeWork).
The peer-to-peer ridehailers have also angered cities as traffic has soared as the majority of vehicles are empty, and frustrated drivers that have to compete with one another for fares.
Accelerating Profitability
While the peer-to-peer giants struggle to find black ink, new ridehailing businesses are emerging that promise investors accelerated profitability. Dallas-based upstart Alto announced it had secured a $6 million investment in January to expand into new cities in Texas and California. HopSkipDrive, a six-year-old business offering rides for children, raised $22 million in February and gets most of its revenue from school districts.
Both businesses, in very different ways, are tapping into the Achilles heels of businesses like Uber and Lyft — the built-in inefficiency of the business model and consumers’ concerns about safety.
Safety and Consistency
Alto founders discovered that women are half as likely as men to use ridehailing services primarily due to issues of safety and consistency. Incidents of assault by drivers, shabby vehicles, and inaccurate wait times topped the list of reasons women shunned the services.
In response, Alto designed a service that features professional, background-checked, trained drivers and luxurious, 5-star safety rated Buick Enclave SUVs. Rides are guaranteed to arrive within 15 minutes of booking, and each user can set the temperature, lighting, music, and conversation level desired for the trip. Founder Will Coleman has said that the business is already profitable on a per-ride basis, and should achieve operational profitability in late 2020 or early 2021.
The key to profitability for Alto is its ability to manage vehicle utilization — the number of miles a vehicle and driver is carrying a customer compared to the number of miles the vehicle is empty. The goal for companies that own their vehicles and pay their drivers to maximize the utilization ratio, 100 percent being perfect. Alto uses AI and machine learning-driven “fleet orchestration” technology provided by Bestmile to match ride requests with vehicles using real-time and historical demand and sends the most efficient car after considering many variables.
An orchestrated service is not just about getting someone from point A to point B. Efficiency requires the consideration of where the next bookings are and will be in the future, fuel levels, the shift time of the driver, and a myriad of other factors when deciding which vehicle to send on a trip. Anecdotal evidence suggests that Alto has reached utilization ratios of up to 95 percent. Fleet orchestration is also what enables Alto to promise predictable pickup times.
Transporting Kids
Los Angeles-based HopSkipDrive, on the other hand, realized that school districts spend $25 billion a year on transportation, yet only one in three children ride the bus — another case of exceptional inefficiency. The company has two services, one for parents and one for schools.
Parents pay for the trips they need each day or week, and schools contract with HopSkipDrive to provide a more convenient, efficient transportation service that is used, among other things, to transport homeless children and children in foster care to schools. Drivers must have five years of caregiving experience, a good driving record, and pass multi-agency background checks, including fingerprinting. Drivers and passengers use a dual authentication process that allows drivers and children to confirm a code word to identify one another. Parents can track the rides in real time.
Because the routes and schedules are all planned in advance and repeated daily or weekly, so the company can easily balance supply and demand, and achieve high percent utilization. There are no empty vehicles cruising around looking for rides. Predictable supply and demand and contracts with schools provide a strong path to profitability.
The Future of Ridehailing
Alto and HopSkipDrive have built highly differentiated services for very specific target markets. They have identified gaps and shortcomings of peer-to-peer ridehailing for these markets. Neither business is competing based on price. This may be the future of ridehailing as peer-to-peer models fall out of favor customers and investors. Focusing on a niche segment that value specific features like safety and comfort and is willing to pay a bit extra for a higher level of service and maximizing vehicle and drive utilization can shorten the road to profitability.
