Uber and Lyft Are Bleeding While Spinoffs Hit the Pedal
WHY YOU SHOULD CARE
They wouldn’t exist without the ride-sharing giants, but these startups depend on firms that are still failing to turn a profit.
Uber driver Damien Cortez says the Firefly digital screen atop his car makes his vehicle easier to spot, and that he earns about 20 percent more than before he had it installed. Fellow driver Jackeline Arana, a single mom of two in the Bay Area, was an early Firefly user who now earns around $400 more each month.
Firefly, which launched last December, installs screens atop Uber and Lyft cars, or any car that a driver is using to earn money, including food delivery or cabs. These dynamic screens run targeted, geo-specific advertisements that change as cars move among neighborhoods. It’s just one of a handful of ride-share spinoff companies to emerge in the past five years that are helping drivers earn more money at a time when their principal jobs — as Uber and Lyft drivers — are growing less lucrative. Yet these new companies are also basing their entire business models around an unprofitable industry: Both Uber and Lyft reported $1 billion losses in their first quarterly earnings since going public, raising questions about their sustainability.
So far, these struggles aren’t impacting HyreCar, one of the earliest spinoffs from the ride-sharing economy, which launched in 2014. A Los Angeles–based startup, HyreCar essentially acts as a matchmaker between car owners and dealers on the one hand and drivers looking to lease vehicles to run as Ubers or Lyfts or for food delivery on the other. The firm now operates in all 50 states and went public in 2018, a year before Uber and Lyft. Its net revenues grew by 138 percent in 2018, from $1.3 million in 2017 to $3.1 million.
Cargo, another startup, might be more familiar if you’re an American Uber rider on the East Coast or in the Midwest. As an exclusive partner of Uber, the firm effectively turns ride-share vehicles into mini convenience stores. It outfits the cars with small boxes filled with bottles of water, chips, candy, earbuds and phone chargers. It buys these items in bulk, at wholesale rates. Riders can purchase what they need at the market price while they’re traveling instead of visiting a convenience store — they just need the Cargo app. The firm shares the earnings with drivers, who today earn an average of $130 a month for doubling as salespeople. Drivers earn $1 for every order plus 25 percent of each retail item. They can earn even more from sales bonuses, referrals and in-app tipping. Cargo started in New York and Boston in 2016 and is now used by more than 20,000 drivers in the U.S. and Brazil (where the firm expanded in May) who have collectively earned more than $1 million in additional income.
We noticed the growth of serving [targeted] ads online and thought we could do a similar thing with rides.
Kaan Gunay, Firefly
And Firefly, currently backed by Google Ventures among other investors, has already raised $51.5 million — including $30 million in May. The firm has had more than 650,000 hours of content played on the car-top ad screens. The company just expanded to New York, where it also advertises on taxis. Driver incomes have increased by 10 to 15 percent on average. It was that realization — that drivers in the ride-share economy were an underutilized asset — that led to the creation of Firefly, says co-founder and CEO Kaan Gunay.
“We noticed the growth of serving [targeted] ads online and thought we could do a similar thing with rides,” Gunay says.
For drivers, the additional income that partnerships with these firms offer is significant at a time when changes in their pay structure have lowered the per-mile earnings of many Uber and Lyft drivers nationwide. A study from the JPMorgan Chase Institute in 2017 also found that drivers were earning less than half of what they did four years earlier.
But there are other beneficiaries. Firefly’s biggest appeal for advertisers is that the digital screens are “situationally aware” — changing messages based on location. The screens also show nonprofit content and Amber Alerts and are wired to collect data on carbon dioxide levels, says Gunay, helping to serve as a potential data source for policymakers. In San Francisco, the screen is installed for free by Firefly, and Gunay says they have thousands of drivers on their waitlist. Uber’s and Lyft’s policies on allowing drivers to place commercial ads on their vehicles is murky, but neither company has strictly prohibited it.
Cargo also serves as a marketing tool for brands because it consistently gets their products in front of new customers. “Ride-share passengers [can also] access exclusive digital offers on their smartphone while in transit,” says Jeffrey Cripe, Cargo CEO.
Meanwhile, HyreCar connects owners and dealers of a less-used car with Uber, Lyft or food delivery drivers. Drivers go on the HyreCar site, find a vehicle they like and send an application to the owner. They can rent a car for as little as two days and up to a month, and it’s easy to renew. HyreCar also provides drivers with insurance. Roughly 40 percent of those who sign up to drive for Uber and Lyft don’t have a qualifying car to get started. Many times, that’s because they’re under 25 and can’t get approved for a lease. “That’s where HyreCar comes in,” says Nate Ryan, vice president of marketing at HyreCar, which frequently approves drivers under 25.
To be sure, these firms face challenges. In Los Angeles, Firefly has received some pushback, primarily from District 3 city councilman Bob Blumenfield, who says the moving billboards are distracting and could cause accidents. The companies’ dependence on a new and still unprofitable industry also leaves them vulnerable.
So far, suggests Purush Papatla, a marketing professor at the University of Wisconsin-Milwaukee, these firms don’t have any reason to worry. “Businesses participating in the ride-share ecosystem are not making huge leaps of faith,” he says. But a bigger threat may emerge from how Uber and Lyft react. “As the ecosystem becomes more attractive, the ride-share operators could take a bigger and bigger cut from the participants of the ecosystem,” he warns, noting the 30 percent cut Apple takes from sales in the iOS App Store.
For now, these companies aren’t too worried. Gunay sees advertising as a way of significantly lowering future transport costs. And Ryan of HyreCar insists that even without Uber and Lyft, the broader economic ecosystem around drivers looking for cheap and flexible ways to “own vehicles without actually owning” will survive. There’s no turning the clock back on that, these founders believe. Nor, they hope, on their early success.