Revised February 19, 2018, based on excellent comments.
We’ve all heard that the most important transportation innovation of the century is the smartphone. Who can doubt that apps for ride-hailing, navigation, and payment are making it easier to use shared transportation services, whether buses or Uber/Lyft or anything in between? How can anyone who remembers waving helplessly at rushing taxis, or wondering when the bus would come, possibly doubt that this transformation has fundamentally changed all the products it touches?
From a customer’s point of view, I don’t doubt any of these things. Apps have transformed the customer experience totally. But that says nothing about whether they’ve transformed the bottom line of the provider.
Len Sherman has a nice short piece in Forbes explaining why Uber can’t make money. Key quote:
The taxi industry that Uber is seeking to disrupt was never profitable when allowed to expand in unregulated markets, reflecting the industry’s low barriers to entry, high variable costs, low economies of scale and intense price competition — and Uber’s current business model doesn’t fundamentally change these structural industry characteristics.
Standard Uber/Lyft ride-hailing service is made of two main ingredients:
- Taxi service, minus the protectionist regulations that kept some taxi fares artificially high.
- An app that expedites hailing a taxi and paying the fare.
The relationship with drivers is also a difference, but not as much as it may seem. Uber and Lyft let drivers use their own cars, but many taxis are driver-owned as well. Both Uber/Lyft and taxis pay the driver based on fares, not based on hours worked.
So really, the big difference is the app.
The app has transformed customer experience — by taking the friction out of the hailing, routing, and paying — but it doesn’t seem to be transforming the fundamental nature of the task, or its potential to be profitable.
That’s because transportation happens in physical space. The dominant element of cost is the time it takes to drive someone to their destination, and to travel empty between jobs. The app does nothing to change this. At most, Uber and Lyft have turned their efficiencies into fares slightly lower than taxis, due to intense competition between them.
If ride-hailing companies had the potential to be profitable — short of creating the same monopoly for them that taxis used to have — someone surely would have done it by now. But Sherman notes:
Every major ridesharing company in the world is still experiencing steep losses after five or more years of operation, including Lyft (U.S.), Ola (India), 99 (Brazil), and Didi Chuxing (China).
We are seeing the same thing on the microtransit side. So far, microtransit is doing no better than demand-responsive transit has always done, generally worse than 3 passenger trips per driver hour, compared to 10 for the typical outer suburban fixed and 20-100 for fixed routes in dense and walkable places. In fact, the most widely promoted recent experiment, the Bridj pilot in Kansas City, did not reach 1 passenger / hour and managed to spend about $1000 per passenger trip, compared to less than $5 for a decent fixed route.
This gap is too vast to be a marketing problem or something that can be solved by tinkering. It’s a fact about the intrinsic spatial inefficiency of demand-responsive service, which has little to do with the communications tools used.
It’s time to notice a pattern: Tech boosters treat solutions to a communication problem as though they were solutions to a spatial problem.
Certainly, communicating via telephone calls was part of the inefficiency of taxis, but if the smartphone app were enough to make taxis profitable, we’d be seeing the results by now. Likewise, it’s great that apps are improving the communications side of demand-responsive transit, but so far, there’s no sign that this is making a difference on the bottom line.
Remember: Urban transportation is a spatial problem, and (until automation) a problem of the efficient use of labor. If you’re going to transform it, you have to transform those things. Nothing about the standard Uber/Lyft product, or “microtransit,” is touching those fundamentals.
So have apps transformed the customer experience of urban transport? Yes! Have they transformed the urban transport business? Maybe not so much.
 There is a vast range of hybrids between a fixed route and a fully “to your door” demand-responsive service, all of which are very old ideas. I was designing and revising these 25 years ago. Everything that’s known about the math of that problem was well understood back then by the people doing it.
 This appalling number is from Eno Center’s report “UpRouted: Exploring Microtransit in the United States,” p.7, which is generally upbeat about microtransit prospects. More commentary on this report soon.