Tuesday, December 20, 2011

The Driver

The Driver is probably the easiest Rideshare participant to analyze, because he or she benefits financially by offsetting the cost of the commute.
In a major city like Los Angeles, most corporate commuters have a couple hundred people working in the same building as them, and a couple thousand people working on the same block as them. That means that there is great potential to offer a ride to someone with a minimal amount of detouring for the driver.

Minimal does not mean none, of course.  The Driver must make a detour in the outer suburbs of Los Angeles to pick up his passenger, which may take anywhere from five to ten minutes of time and require the expenditure of perhaps one-tenth of a gallon of gasoline. Similar expenditures are also required at the end of the day to drop the passenger off. Then there is also the compensation the Driver will expect for surrendering the privacy and serenity of driving alone to pick up his passenger. The latter is obviously somewhat more difficult to put a money value on than the former. But research by Rideshare management and outside experts has shown that in many cases the Driver will be satisfied with as little as $5 compensation for each leg of the trip per passenger.  So the value the Driver places on each of the “cost” components of his operation may look something like this:

Gasoline $4.00/gallon $0.40
Time $24.00/hour $2.00
Privacy Value $2.60

The Gas price reflects the current average in Los Angeles as of November 9th, 2011, and the time value reflects the median income of American workers divided by the average number of hours they work. So long as the Driver receives at least $10 of compensation per round trip, he is satisfied. In this example we have assumed that the Driver goes ten minutes out of his way to pick up the passenger on the residential end, but need only make minimal detours on the business end of the trip(i.e. they work in the same building or at least on the same block.) If the Driver had to go out of his way on both ends, the compensation he demanded would probably go up.
That is the Driver. Next we will turn to the Passenger.

Monday, December 12, 2011

The Macroeconomics of Rideshare

Hi everyone. We are going to begin our Meet Rideshare series with the Economics portion. By economics, I mean the systemwide view of the inner city highway system that would persuade a professional economist that a program like Rideshare makes sense. Here we are not concerned with how each participant in Rideshare is going to benefit, we are just trying to understand the problem we face better. Why are highways always congested, and what makes private companies and governments so reluctant to expand them?

Highways are congested a lot of the time in major cities because they suffer from what economists call the “peak problem” That is, how many people are using a highway is not a consistent number from day to day or even hour to hour. Highway usage is highest during rush hour on the weekdays and lower during the rest of the weekday and the weekend. Usage of particular stretches of highway also peaks during sporting events, concerts, and other public gatherings. Highways around airports are also in higher use than the roads that must be built to get to them. Sometimes it is impractical for whatever reason to expand the roads at a particular stretch of the highway(which need the extra capacity), without also expanding the roads which lead to that stretch(which are running just fine at current capacity). So either you have too little capacity at one place or you have too much somewhere else, but you can’t get it just right.

A corollary of the peak problem is the “underutilization problem”, sometimes called the “offpeak problem”. Highways also have long periods of time where not only are they not congested, they are barely in use at all. Overnight hours are the best example of this, and people tend to complain about this less since they are not directly penalized for it, only indirectly in taxpayer dollars not being put to good use.

Highways also suffer from another problem, which has no official economist term, and so I’m just going to name it myself the “capacity reserve problem”. Unlike with many other forms of consumption, where the consumer consumes only what they need to consume, users of the highway often waste up to 80% of the highway capacity that they consume. Why? Because quite often when people(especially corporate commuters) get on the highway, they are travelling alone. BUT, they are in a car meant to carry anywhere from five to seven people. And that car does not take up less space on the highway just because it isn’t full. So when you’re sitting in a congested L.A. highway crawling along at 2 miles an hour, what should really be driving you crazy is not that the highway is so crowded, but that 80% of what’s crowding it is empty space.

Investors and taxpayers, however, remain reluctant to make new investments in expanding the highway system precisely because, even if they don’t know all the technical terms, they understand at some level that as currently structured it is not terribly efficient. You are talking about building something that is going to sit underutilized about 88% of the time(4 rush hours x 5 workdays per week / 168 hours per week = approx. 12%) and which wastes about 80% of its capacity at precisely the time efficiency is most important.

Enter Rideshare. Rideshare is literally made to order for this problem, the PERFECT solution which fits into this problem like a key fits into a lock. Let’s go over each of the problems in turn.

1) Peakhour Usage
Rideshare is a social networking platform with a dynamic adaptive market based structure and a critical mass requisite. Err, English please?
What this means is that Rideshare works best when there are a lot of people who want to use the highway at a given time. For Rideshare, congestion is not a problem at all. Rather, it is the raw material we use to create our business, for the benefit of all concerned. Congested highways mean a lot of people want to use the highway right now. That means more potential drivers and passengers. And the more people there are who want to travel on the highway at a particular time(adding to congestion), the more people will be using Rideshare’s service(reducing congestion). Rideshare thus by its very nature will act as a sort of release valve for highways. Rideshare will only be “triggered” at the times it is needed. Instead of reducing usage in equal increments at all times throughout the highway system, Rideshare by it’s very nature will focus on those times and places where congestion is the biggest problem.

2) Offpeak Problem
Of course, that also means Rideshare also has very little potential to use when the highways are not congested. And that is absolutely right. However, even this is a benefit of sorts, if only in the sense that that means Rideshare doesn’t need to operate when it’s services are not needed. Highways are, as discussed above, problematic investments because they cannot be targeted at particular times and circumstances. You cannot build a highway for one hour or one day or one week while you  need extra capacity, and then cancel it. You either build a highway or you don’t. Rideshare, however, represents the equivalent of “temporary capacity” in the highway system. It operates only when needed,  and the personnel and servers that run it can be sent home, turned off, or redirected to other areas when it is not needed. Thus the additional capacity represented by Rideshare is not locked into being the same amount of capacity in the same place at all times. It can be concentrated where it is needed.

3) Capacity Reserve
Rideshare’s whole modus operandi is to put more people into each car, thus reducing the total number of cars on the road and the expense per person of getting those cars from their starting points to their destinations. Capacity reserve, those empty seats in each car, are again not a problem for us, but a raw material we can use to provide our service. Each driver has multiple empty seats he would just as soon fill as leave empty, since the marginal cost of adding a rider to a car already traveling is almost zero, and the savings of taking a car off the road are substantial.

As you can see, Rideshare is just about tailor made for this problem. This then is sort of the “overhead view”, the broad perspective of Rideshare. In the next posts we will examine the incentives and rewards of each of the individual participants in the Rideshare program.

Tuesday, December 6, 2011


What the heck is Rideshare?
Well, Rideshare is a dynamic, adaptive, user-directed, market-based, mobile-controlled carpooling service with a critical mass requisite and a positive social externality.

Sorry. I get carried away. Basically, Rideshare is a cheaper and greener way to get to work.

The average corporate commute in Los Angeles is about 20 miles. That’s 20 miles per trip, 2 trips per day, 250 days per year on average. Add on parking expenses, the extra gas and time you spend idling in highway traffic jams at rush hour in non HOV lanes, commuting daily is very costly. With gas prices steadily increasing 11% year, gas prices approaching $4 per gallon and parking in Los Angeles at anywhere from $7-$20 per day, the average L.A. worker can easily spend over $6400 per year, or $500 a month just getting to work. If you add on your additional car payments, insurance, and repairs…..well, it’s a lot of money, is the point.

Rideshare can’t quite reduce the cost of the trip to zero, but we can make a significant dent in the financial expense, as well as making the trip more enjoyable and more socially and environmentally responsible, and all while getting you to your destination faster.

Rideshare is a carpooling service. It is a network of daily corporate commuters who travel to and from the same places every day to get from home to work and back. By putting at least two people in every car in our service, our customers gain access to California’s HOV lanes, allowing them to travel faster, while cutting in half the cost of gas, parking,  etc.  And our service is cheap. Shared cost of commute is based on IRS mileage* between the driver and passenger. Rideshare aims to keep costs for its core tier of service, i.e. a 40 mile per day round-trip commute from $5 to $10. This translates to a savings of more than half the cost someone would pay to travel that distance themselves and have that extra time for yourself. And they get there faster. To say nothing of the benefits to the environment from reducing the number of cars on the road.

Over the next few days, we will be running a “Meet Rideshare” series of blogposts to familiarize everyone with our business model and plans for operation. We will look at each of the participants in our business and how they can benefit from our service. You can also check back here periodically for updates on free trials, expansion plans, and more.

*IRS mileage allowance of $0.55