Uber will be the Uber of Mass Transit

The bus of the future is going to look a lot like a car.

The Rise of the Bus Startups

Over the last couple of years, an ever-growing number of mass transit startups have launched. Bridj, Chariot, Loup, Leap, Midnight Express, and Blackline are all bus or carpool services aiming to do for buses what Uber did for taxis: build a modern, agile alternative to public buses and subways. All are positioning themselves as the Uber for mass transit. Many of these startups are funded by top tier investors, including a16z, Obvious Corp, and Atlas, so smart people believe that there is a distinct market opportunity in mass transit that ridesharing services are not addressing.

Meanwhile, Uber just celebrated its 5th birthday. In his celebratory remark’s, Travis Kalanick said the following regarding UberPool, Uber’s carpooling service:

“And not only is it much less expensive than taking a cab or owning a car, it has the potential to be as affordable as taking a subway, or a bus, or other means of transportation.”

In other words, Uber will be the Uber of Mass Transit. I believe they will succeed (with some caveats). Moreover, I don’t think they will succeed by launching a line of buses. Rather, the mass transit system of the future is going to look a lot like a network of cars.

And startups like Chariot, Leap, and Bridj just won’t stand a chance.

Everything is Getting Smaller

In his seminal paper, The Nature of the Firm, the late, great Ronald Coase stated that the optimal size of a firm in an industry will decrease as transaction costs in the industry decrease. While this theory was developed to describe firms in an economy, the concepts actually hold when you apply it to the physical size of vehicles. As you remove friction from the transit system, the optimal size of the vehicle shrinks as well.

Basically, if you’re going to imagine a nimbler, more modern transit system, you should anticipate a smaller average vehicle size. I contend that it will be a much smaller average vehicle size. If your vision for the future relies on big buses, you’re probably missing the mark.

Cost Sharing Is Becoming Less Valuable

Mass transit is usually considered a tradeoff between cost and convenience. Convenience aside, cost savings are achieved by distributing the cost of a ride amongst more riders. This is obvious, but let’s dive a little deeper.

Already, a typical Uber fare of $15 in San Francisco split amongst 3 riders is comparable to what you would pay for a ride on Chariot, Leap, Loup, or Bridj (which hover around $6 ticket). And that’s without the constraints and costs of fancy buses and fixed routes. That means if Uber can mature its pooling service to serve an average of 3 riders, it’s already dominating the value proposition of any of the new bus startups.

But that’s where the puck is, not where it’s going. There are three major transformations currently underway: centralized/real-time logistics (which is what Uber provides), electric vehicles, and driverless vehicles. Taken together, the marginal cost of providing a point-to-point private ride (which is probably universally regarded as a superior experience to a bus) is going to drop dramatically. After all, with no driver to pay and no fuel to burn, what is the major cost of an incremental ride?

It also means that the relative cost savings of ride pooling are less dramatic. That’s not to say that there aren’t cost savings to be had, but the inflection point is going to move. Whereas before, the optimal bus size might be 40 seats, as marginal transportation costs go down, the optimal size will go down as well. My contention is that the optimal “mass transit” vehicle is going to be surprisingly small.

At the current price points for public bus and light rail, UberPool could be cost-competitive simply by taking advantage of either cheap electric cars or self driving vehicles. If UberPool took advantage of both cheap electric and self driving cars, what sort of price point would Leap or Chariot need to be competitive? Why would anyone take public transit?

Buses will become shuttles and then vans and then just cars.

Timeliness is a Feature of Infrastructure, Not the Vehicle

Most of the time, mass transit is less convenient than taxis. Mass transit requires that people conform to routes and schedules to build enough density to make ride pooling economical.

However, in some cases, mass transit is more convenient than a taxi or car. I know many people who choose to ride the Caltrain from the peninsula to SF specifically because it tends to run on time. With the Caltrain’s express services, it’s the only transit option that actually gets faster at rush hour. Likewise, there’s no more reliable way of getting from Harlem to Times Square than the NY subway.

It’s important to note that when mass transit is reliably faster than private cars, it’s not because they’re run well (or at least not just because they’re run well). It’s because they run on protected lanes or tracks, where congestion isn’t an issue. That’s an unfair advantage granted by the government. It makes sense to use government to build protected infrastructure for particularly dense routes. That’s why the NY subway may withstand an Uber takeover.

So does that mean that Bridj/Chariot/Leap/et al can be competitive?

No. Barring a miracle or crony capitalism, a protected route is not going to be granted to a startup. The best protected routes (like subway rails or tunnels) will continue to be the domain of public transit, not private, mass transit. And in no cases will a protected route be an exclusive advantage for one startup, particularly an early stage one.

Subject to the same roads as Uber, Bridj/Chariot/Leap can be no more efficient than Uber. In practice, they will be far less efficient.

So Please Stop Funding Bus Startups

Even though bus startups may be enjoying some early, local traction, they are at best a stopgap measure. They are actually solving a much harder problem than Uber (ride pooling for many rather than just ride sharing for a few), they don’t have nearly the rider density that Uber enjoys, and the hard problem they’re solving just isn’t going to be as relevant in the future as transaction costs decline.

If you want to change the face of transportation, build a hyperloop. Design a theft-proof bike. Solve the kid transport problem. Or just put more money into Uber. Just please don’t build me a better bus.

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