Smartphones - Using Mobile to Rideshare

If Rideshare needs a mobile smartphone just to operate, doesn’t that make it more expensive than driving? Smartphones cost like $800!!!

This comment from a prospective Rideshare member not too long ago deserves an answer. And the answer is good news: no, it doesn’t make Rideshare more expensive than driving. In fact, it needn’t increase the cost of ridesharing one single dollar.
First of all, smartphone penetration is increasing all the time. There are now over 120 million smartphones in operation amongst the United States 330 million cell phone users, according to the latest Nielsen and Pew surveys.  Under-18s and over-65s were the two LEAST likely groups to have smartphones, so the 19-64 crowd, where our corporate commuters are located, are probably over represented in the smartphone population already, and face no incremental expense to download and use our free app.

Secondly, that number is only going up. Those same reports show that smartphones now account for 55% of all NEW phone sales, up from 34% just one year ago. So the smartphone population is growing rapidly, and this is becoming less and less of an issue every day.
Thirdly, is that price accurate? Do smartphones really cost $800? Let’s take a stroll through the “Big Four”(AT&T, Verizon, Sprint, and T-Mobile) websites and browse the smartphone selection.
The only $800 smartphone on the market is the iPhone 4S 64GB, the most expensive smartphone in history. And that is the unsubsidized price. Smartphones don’t do you much good without a carrier network to operate them on, and most carriers will subsidize a smartphone up to $450. That subsidy is free and doesn’t impose any marginal cost on the member. So what is the price that a person will actually pay out of pocket for a smartphone? Below are some examples:

                AT&T Verizon Sprint T-Mobile
iPhone 4S 64 GB $399.99 $399.99 $399.99 Not Carried
iPhone 4S 16 GB $199.99 $199.99 $199.99 Not Carried
Samsung Galaxy S2 $149.99 Not Carried $199.99 $229.99
HTC Vivid/EVO/Amaze $199.99 $149.99 $99.99 $179.99
HTC T-bolt/Inspire/WildfireFree Free Free Free
iPhone 3GS Free Not Carried Not Carried Not Carried

Different carriers have different names for the same or similar phones, so I am not sure I have “paired” the various models correctly. But at any rate you get the picture. While there certainly are expensive smartphones out there for people who want to buy expensive smartphones, there are plenty of options for the cost conscious customer. And certainly after the carrier subsidy no one is paying anywhere close to $800.

Perhaps the most salient point is the ever growing list of smartphones available for free after carrier subsidy, including, for the first time, an iPhone model. This means that a person may upgrade their current phone to a smartphone without paying a dime out of pocket. So while Rideshare does require a smartphone to operate, purchasing that smartphone does not have to cost our members any more than they are prepared to pay, including those who don’t want to pay at all.

The only exception to this would be the data plans that come with the smartphone. Customers who don’t have smartphones don’t need data plans, customers that do have them need them. This is a potential new cost for a small portion of our customers that don’t currently possess smartphones. We will examine this point more in the next post.

Highway Congestion

The last major participant we will cover in the Meet Rideshare series is, again, a somewhat, er, ethereal participant. It is the highway system itself, which is scarcely able to breathe at rush hour times, poor fellow, because of how clogged its “arteries”(highways) are. What kind of impact will Rideshare realistically have on congestion on the highways? The answer is, potentially, massive.

Congestion, like pollution, operates on a synergistic basis. Congestion breeds more congestion. This is because congestion forces everyone to slow down. It is amazing how fast a 65 mph highway can turn into a 5 mph in the city of Los Angeles. And the really amazing thing is just how few cars it takes to make it happen.

Highways have a capacity limit, like most networks do. They are built to hold and move a certain number of vehicles, just like cable systems are built to hold a certain number of channels or cell phones are built to move a certain number of bits per second. However, congestion on the highways differs from congestion in cable or cellular systems in one important respect: excludability.

What this means is that when a cable system doesn’t have room to add another channel, it can refuse to do so. The cable operator is coordinating the system, and makes sure that the cable system isn’t asked to carry more channels than it can handle. If a cable system tries to cram five channels into four slots, the picture will become all pixelated and distorted, and customers will not have four or five channels to enjoy. They will have zero. Congestion slows down everyone in the system, not just the newcomer there’s no room for.

Cellular networks, if asked to transmit more data at one time than they have, have a different control mechanism. They simply slow everyone’s transmission speed to the level the system will bear. But even though each individual’s transmission may move somewhat more slowly, the system itself is still working at maximum capacity. A system meant to transmit 1 Mbps for 100 people may instead transmit .5 Mbps for 20 people for example. But A total of 10 Mbps is always moving through the pipes.

Highways are different. A highway which can move 10000 cars at 60 mph cannot move 12000 cars at 50 mph. This is because each additional car on the roads forces every car on the road to move more slowly. What’s more, unlike with cable or cell systems, there is no controlling authority which can stop people from entering the highway once it’s capacity limit has been reached. So as the slower highway fails to get people to their destination, and off the highway, as quickly as before, more people are continuing to pile onto the highway, creating still more congestion which clogs the roads still further, causing the speed of the highway to be reduced again, causing more congestion, and so on. A highway which has even a little congestion on it therefore, or goes even slightly over capacity, quickly enters a death spiral, a negative feedback loop which destroys the utility of the highway for everyone.

Rideshare, however, makes this synergistic snowball effect run the other direction. Taking some cars off the road reduces congestion directly, of course, but it also has additional “knock-on” effects. Fewer cars and less congestion on the highways means that the cars that remain can move at something closer to the speed limit, covering more distance in less time and thus getting them off the highway faster. Getting them off the highway faster means that the remaining cars can move still faster, and get off the highway still faster, thus allowing the remaining cars to move faster, etc.

So you see, Rideshare doesn’t need to get that many people out of their own cars and into someone else’s to achieve a drastic reduction in highway congestion. Indeed, Rideshare’s ability to create clearer and faster highways for everyone in Los Angeles, including those who never use our service, far outweighs even our other positive social benefits. We can make a significant contribution to environmental protection and a somewhat smaller one to climate change, but Rideshare may just have the ability to all but eliminate highway congestion on its own, if we can get enough people onto our service.

The Environment

Having examined the three parties to the commercial transaction, I thought we’d take a little time to talk about a few more “interested parties” in corporate commuting, even though they perhaps are a little more, er, abstract. With that in mind, the next “participant” in the Meet Rideshare series is the environment.
Gasoline emits any number of pollutants, which can broadly be broken down into two categories. Local Pollutants are pollutants which linger in the immediate (i.e. same city) area in which they are emitted. The levels of these pollutants in a given city is therefore highly correlated to how much of them is emitted by that city. And so, therefore, actions to reduce emissions of these pollutants benefits primarily the city which has reduced them. Local pollutants include Volatile Organic Compounds, formaldehyde, nitrous oxides, hydrocarbons, carbon monoxide, and particulate matter, and produce such things as smog and soot. They contribute to lung and heart disease as well as just general blight on the horizon.
Global pollutants spread out beyond the immediate area in which they are emitted. The best known global pollutant is probably carbon dioxide, which pools in the upper atmosphere of the planet. Carbon emissions anywhere on the planet are therefore a reflection of carbon emissions throughout the planet, and so are somewhat harder to take action against, since reducing one’s own emissions of carbon does no good if everyone else does not simultaneously reduce theirs. Other Global pollutants include methane, sulfur dioxide, and mercury, which all tend to pool at either the nationwide or regional level.

For the reasons explained, Rideshare’s primary benefit to the environment will be the reduction of Local Pollutants. While Rideshare will also reduce emissions of Global Pollutants, such reductions are not large enough to alter the global balance of these pollutants, since in terms of global emissions one city’s rush hour transportation emissions are a drop in the bucket. A city’s rush hour transportation emissions do however constitute a substantial portion of the city’s own Local Pollutants, and so Rideshare’s ability to reduce such emissions will provide noticeable benefits to the citizens of Los Angeles; even the ones who never use our service.

Putting numbers on these benefits is a little harder. In the U.S., a total of 238 billion vehicle miles were traveled in December 2009. Los Angeles contains about 3% of the U.S. population, so our local vehicle miles traveled would probably equal about 8.1 billion VMT per month, assuming Los Angeles is somewhere close to the average U.S. number. Los Angeles corporate commuters represent, according to our prior calculations, about  4 billion VMT per month(20 miles per trip x 5 million commuters x 2 trips per day x 20 days per commuter per month). So corporate commuting represents close to half of L.A. vehicle miles travelled. We can maybe quibble over these numbers a little bit, but they’re almost certainly not grossly off the mark. According to the E.P.A., automotive emissions account for about half of nitrous oxide emissions and hydrocarbon emissions, and a staggering 95% of carbon monoxide emissions. So if half of L.A.’s corporate commuters join Rideshare, at a one to one Driver to Passenger ratio, total vehicle miles traveled will be reduced by an eighth. This means that CO emissions will be reduced by 12%, and NOx and HC emissions by about 6%.

While that may not sound like much, it is important to remember that environmental pollutants operate on a synergistic basis. That is, each additional pound of pollution does far more damage than the one before it. Reducing pollution by 6-12% reduces the damaging health effects of pollution by a far greater proportion. In fact, the EPA has set a goal of reducing the emissions in the Los Angeles area by half(this is what is required to earn the EPA’s designation of Los Angeles as an “attainment area”), since that is all that is required to eliminate the detrimental effects of the pollutants. Remove half the pollutants, and the other half become harmless. So while Rideshare will not do the whole job, it can make a big dent.

The Passenger

The Passenger is the one paying in the Rideshare business model, so the savings to him must be enough to make the payment worthwhile. In order to calculate his payment, we need one piece of information we did not need for the Driver: the total distance traveled from home to work. This didn’t matter in the Driver’s case as he needed to travel that distance anyway. Only the marginal distance added by detouring to pick up the passenger matters to the driver. But since the Passenger’s payment to the Driver will reflect the total distance traveled, we need to know how far they go.

The average corporate commute in the city of Los Angeles is about 20 miles. We know this from both the personal experience of Rideshare management and the results and research of other carpooling companies. We will use this average for now.


Although the mileage price will be determined in a free market transaction between the driver and passenger,  we can make an educated inference about the price. Since the IRS budgets mileage at $0.50 per mile, that is the number we will use for now. (I mean, if it’s good enough for the government…..)
At $0.50 per mile round trip x 20 miles per trip, the Passenger’s payment is $10 per day. Less than a cab fare, but a substantial expenditure nonetheless. Do the benefits to the Passenger justify this expense?


First, let’s calculate his direct savings. The Passenger saves on the gas to drive 40 miles per day, which given time spent stuck in traffic is even more than the mileage of his car would suggest. According to the Consumer Energy Center, an idling car consumes about half a mile of gas per minute. Assuming passenger drives a fuel-efficient vehicle that gets 30 miles per gallon, and also assuming that Passenger spends equal amounts of time moving and idling, idling on a 60 mph highway(average of 55 mph and 65 mph) for half the time on a 20 mile commute means adding the equivalent of 10 miles to the trip in gas costs alone. At $3.90 per gallon, which is the cost at my local L.A. gas station as of November 20th 2011, this means the gas costs of a round trip are equal to $7.80 per day for the Passenger. These are costs he has saved by paying someone else to drive him.


This is less than $10 though. Does that mean that the Passenger won’t use Rideshare? Hardly. Add on the costs of parking, for starters, which in L.A. will be $7-10 if you’re lucky and up to $20 if you’re not. In parking and gas costs alone, you are well above the cost of using Rideshare’s service. We won’t even go into the benefits of reducing wear and use on the Passenger’s car and the more enjoyable and productive  time he spends not having to sit behind the wheel, but instead sleeping, chatting with friends, getting an early start on work, etc.
Next, the Rideshare company itself.

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.

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.

Welcome

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.
Huh?

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