Uber Dynamic Pricing

http://allthingsd.com/20120103/was-new-years-eve-a-netflix-moment-for-uber/?refcat=commerce

According to some old adage(I’ve no idea which one or where from), stupid men do not learn from their mistakes. Smart men do learn from their mistakes. And Wise Men learn from others mistakes.

Even as a business, we never take pleasure in the travails of a competitor. But I saw the above article today and couldn’t help but feel there is a powerful lesson in there for Rideshare and for all of us in this market.

Rideshare is not the first carpooling web-based service out there.  Among  the more established competitors we have are Zimride, Avego, Ridejoy, and last but not least, Uber.

Uber is a service very similar to ours, except for the fact that it does not have a set price per mile. Rather, it is more of a marketplace, where passengers bid on drivers services to try to get them to pick them up. The driver looks at the highest and closest bids and has the choice of either accepting it or just going home. And like any marketplace, prices fluctuate.

The rather extreme price fluctuations seen over the holidays, where prices as much as tripled, illustrates the emphasis that potential customers of services like ours place on reliability. Too much price volatility can turn customers away from our service as they never know how much they will be charged until they go to book the return trip, and by then they have already left their car at home and are dependent on our service to get them back home no matter the price. Customers will only put themselves in this position if they trust our service to deliver quality service at an affordable and predictable price.

Rideshare is committed to a fixed-price model that charges a flat  per zone mileage similar to public transportation. This is an integral part of our brand, and a big part of the value proposition we offer to our customers. We are committed to maintaining this pricing model moving forward. We believe our Rideshare commuters are fueled by good and our fixed rate parallels our “fare” share model philosophy.

National Security

There was an interesting article today about the energy balance of trade in the United States. After two decades of ever increasing oil imports, the United States is becoming somewhat less addicted to foreign oil. Over the last five years, there has been a significant improvement in the oil deficit in the U.S. Oil imports, which constituted 61% of total oil consumption in 2005, fell to 49% of oil consumption in 2010. Even more significantly, imports from Canada and Mexico, already representing 30% of our imports in 2005, actually rose over this period, so that oil imports from overseas areas, in some of the more unstable parts of the world, have been cut almost in half over the last five years.

I bring this up because Rideshare has the potential to make another significant contribution to reducing our oil use. Maybe this belongs in our Meet Rideshare series, but we’ve already closed that so I’m just going to fire it up here. How much can Rideshare reduce oil imports?

The United States uses some 9 million barrels per day of gasoline, as well as 4 million barrels more per day of diesel fuel. It also uses 7 million barrels per day for other uses, including jet fuel for airplanes. As you may recall from our previous post, corporate commuting represents some 50% of the vehicle miles driven in a major city, or somewhere there abouts, but obviously much less in suburban or rural areas. On the other hand, some of the vehicle miles driven represent trucks using diesel fuel to ship goods. So corporate commuting actually represents substantially more than half of the gasoline consumption in a major city. Let’s ballpark it and say that corporate commuting accounts for half of the gasoline used in the United States every year, which is probably not a ludicrously out of line estimate. That is 4.5 million barrels per day. Or, more than we import from Canada and Mexico combined. Put another way, if those 4.5 million barrels per day were to somehow stop being used, the United States would ONLY need to import oil from Canada and Mexico, without relying on the Persian Gulf, Russia, or Venezuela at all.

Obviously, even if everyone started using Rideshare the number would not fall to zero. But this gives you an idea of what a large proportion of total oil use corporate commuting represents.
Rideshare is initially aiming for a 1-1 passenger-driver ratio in its carpools, though over time it hopes to bring this higher, and vanpools will have higher ratios right from the off. Transforming half of corporate commuters into passengers will cut the number of cars on the road in rush hour by half but cut oil use by considerably more than half, since drivers will spend much less time idling in traffic. Idling contributes about a third of total energy consumption in corporate commuting according to our calculations. So let’s assume that a 50% cut in drivers reduces idling by 75%(some idling is due to accidents, construction, etc.) This would mean that each percentage point of market penetration nationwide by Rideshare would reduce oil usage by 30,000 barrels per day, with a ceiling potential of 3 million barrels per day if we could somehow achieve 100% market penetration. Even 50% market penetration would reduce oil consumption by 1.5 million barrels per day, which is more than the United States imports from Saudi Arabia.

So, clearly, while it can’t do the whole job, Rideshare can make a substantial contribution to the U.S. national security by reducing our reliance on foreign oil considerably.

Cell Carrier Data Plans

Last week we discussed the need for smartphones to use Rideshare’s service and whether or not they should be accounted as a “cost” under our economic model. I think we’ve covered that pretty well, so here was our conclusion in a nutshell: the only marginal cost Rideshare might impose would be the need for some people who do not currently have data plans to get them. To examine what effect that would have on our analysis of Rideshare’s appeal to our members, I did some research on cell phone data plans.

Rideshare uses a low-data volume app, so we are not going to be consuming Gigabytes of data the way the Netflix or Pandora apps do. Most carriers have reduced price data plans for relatively low intensity users like that. Sprint is the only exception, as they only offer one tier of data: Unlimited, at full price. However, because unlimited data is such a large part of the Sprint brand, very few people who do not have data plans on their phones are likely to be found there, so very few Rideshare members who didn’t already have data plans and decided to get them for our service would likely be found at Sprint. The lowest cost 3G/4G data plans each carrier offers are:

AT&T: $20 300 MB $20/300 MB
Verizon: $20 1 GB $10/GB
Sprint $30 Unlimited Not Applicable
T-Mobile $10 200 MB $0.10/MB

Either of the two largest networks(AT&T and Verizon) charge $20. T-Mobile is the cheapest, but also the smallest carrier with the smallest national network. However, since Rideshare is a service dedicated to arresting traffic gridlock in cities, T-Mobile’s lack of coverage in rural areas isn’t really an issue. Presumably someone who doesn’t already have a data plan is going to be a diligent cost shopper and keep the expense to a minimum, so let’s use T-Mobile as the baseline.

Adding $10 to the monthly cost of Rideshare’s service translates to adding $0.40 per day, on top of the $10 that the average Rideshare passenger will pay. While a 4% increase in price is higher than zero, it is a relatively small cost component in the grand scheme of things. And this is assuming that all of Rideshare’s members need to buy a new data plan solely for the purpose of carpooling that they otherwise wouldn’t purchase, which obviously isn’t true. The actual number of our members who fall into this category is surely much smaller. Even half sounds way too high, but that alone would cut the average daily cost of a new data plan down to $0.20 a day, only 2% of costs.

Even assuming for arguments sake that a small number of our members may need to purchase data plans, Rideshare is not the only use for such plans, and thus should not be accounted all of the accompanying cost. That same data plan will also be used to get work done while the passenger is driving, by allowing them to communicate with coworkers via email in the car and even send completed or pending documents to coworkers and supervisors for approval or revision. This could potentially save them up to 10 hours a week of time at the office they can instead spend on personal activities. Even assuming all our members made minimum wage(they don’t), the time value of those savings would be $4,000 a year. And that is well worth $10 a month for a small data plan.