Why Didn't Sidecar's Flex Pricing Work?

Bennett Haselton writes Sidecar is a little-known alternative to Lyft and Uber, deployed in only ten cities so far, which lets drivers set their own prices to undercut other ride-sharing services. Given that most amateur drivers would be willing to give someone a ride for far less than the rider would be willing to pay, why didn't the flex-pricing option take off? Keep reading to see what Bennet has to say.

I live in Seattle, and nobody I know here has significantly changed the way they think about getting around in the city, as a result of Uber or Lyft. Of course it's more convenient to open an app on your phone and press a button to summon a driver, than to call a taxi company and wait on hold until an operator picks up. And it's reassuring to see a little dot moving across a map on your phone screen showing you how far away your Uber driver is, instead of staring out the window and wondering when your cab is going to arrive. But on price, UberX and Lyft are about the same price as a taxi or less (UberX being the cheaper version of Uber), and sometimes more during "surge pricing" periods. It sounds hip to drop a reference to "taking an Uber" instead of taking a cab, but when cost-conscious people need to get somewhere, they still drive themselves or take a bus, just like they always have.

So I was noodling about writing an article suggesting that a ride-sharing company should try to grab all the market share by implementing a "set-your-own-price" model, which would allow drivers to name their own price for how much they would charge to take a rider from A to B. I even had a specific company in mind: Sidecar, sensitively referred to as the "forgotten stepsister" of Uber and Lyft, should up-end the came and challenge the titans by undercutting them on price. My reasoning was simply that if I want to travel from my house to a location 30 minutes away, a cab might cost $30. But if anybody close by (with a reasonably modern car and safe driving record) can compete on price to take me on that trip, I could probably find someone willing to do it for $10. And with Sidebar not being able to compete with Uber and Lyft on funding or marketing, what have they got to lose by trying a game-changer?

So, beginning of an article sketched out in my head, only to find... that Sidecar has been doing this since February. And nobody noticed. Well, apart from some guy named "Richard Branson", but he hasn't been getting the word out. (All right, be honest: If I hadn't told you that this was an idea backed by Richard Branson, and went with the original article saying it was just my suggestion, would you already be composing comments in your head about what another half-baked Bennett Haselton idea this was?)

So why didn't it change everything? Why do none of my friends talk about "grabbing a Sidecar" to downtown or to the airport?

Well, trivially because there are fewer Sidecar drivers than Uber or Lyft drivers, but that just begs the question: Once a preferable (cheaper) option existed in the form of Sidecar, why didn't more users start trying it out, which in turn draws in more drivers to serve those greater numbers of users? This is the standard textbook economic prediction of what should happen. And while the real world doesn't always follow textbook economic predictions, it's a little surprising to see the reality this far off in this case. A competitor offered a service 50% cheaper than the leading brands, and nobody noticed.

Driver-set pricing has another advantage, which is to blunt criticism of "price-gouging" during periods of high demand. Economists have long puzzled over why Apple and Microsoft don't charge more for their new gadgets, since as long as people are lining up to buy out the stock, sellers could raise the price and still be assured of selling out completely. Various theories abound, including that the act of raising prices would create too much resentment that would cost the company more in the long run. This seems to be the case with Uber, which has long been the target of sarcastic jibes about its "surge pricing", and which was charging four times its standard rate to transport people out of Sydney during a hostage crisis, before the company reversed course after an outcry and offered free rides to passengers trying to leave the city.

Now, most economists would say that raising prices during periods of high demand is what suppliers should do, for various reasons. First, you're going to be providing the good/service to somebody, so by providing it to the people willing to pay the most, you are at least making an effort to provide the service to the person who needs the most. Second, the widely publicized high prices will draw more suppliers into the marketplace to meet the demand, which helps bring prices back down (the standard "surge pricing" notification in the Uber app tries to make this point: "Rates have increased to get more Ubers on the road"). That means even if you're an altruist who planned on burning all the money that you got from driving during "surge pricing", you're still doing more good for the world by charging the highest rate the market will bear. (If you're still feeling guilty about all that extra money, you can donate it to charity rather than "donating" it to your customers by offering them below-market fares.) But I've never heard of a company successfully fighting off charges of price-gouging, by making the economic argument that they were doing the right thing. Usually they just don't engage in a discussion at all, or they cave like Uber did.

But with driver-set pricing, companies could say that they have nothing to do with the sudden price hikes. That's your driver gouging you! And then the driver could justify it to the rider by explaining -- truthfully, in at least some cases -- that they were in the middle of doing something else, when they suddenly got the alert that they could make extra money by providing rides, and it was only because of the high price point that they could justify interrupting their work to come out and drive. By putting it in these personal terms, the drivers would essentially be imparting to their riders the aforementioned economic lesson, the one that no company has ever tried to explain to its customers when it's the company itself jacking up the price. (Although, I expect this would create a new running joke about ride-share drivers: during surge pricing, everybody claims that they stopped whatever else they were doing and came out to "help meet demand", even though some of those drivers must be liars who were already out on the road when the surge hit.)

But in most cases, driver-set pricing would be cheaper than the standard fare set by Uber or Lyft. So why didn't the cheaper option take off? Maybe Sidecar underestimated the disadvantage of only being rolled out in 10 cities -- because Uber and Lyft are deployed in far more markets, they also get name-dropped in vastly more news stories and pop culture references, so even Seattleites won't know what Sidecar is if they only hear about ride-sharing services on TV. Maybe people taking Uber and Lyft rides are consciously or subconsciously trying to be trendy, and there's no point in using the less popular alternative. (Hipsters, on the other hand, now there's a marketing opportunity -- "I'm using this really obscure ride-sharing app, you've probably never heard of it...")

But I think the simpler answer is that the free market is just not the meritocracy that people think it is, or that it's portrayed to be in textbook economic exercises (which would predict that Sidecar should have captured 100% of the market by now). People use what they've heard of, and if a critical mass of influencers happen to talk up a particular product or service at the same time, that gets the snowball rolling, so that still other users will be attracted to the product or service because of the large numbers already using it. Whether the product is objectively "the best" has little to do with the outcome. In a plausible parallel world, Sidecar could have captured more of the initial buzz purely by accident, and led the pack with its flex-pricing model, and now we'd all be talking about Richard Branson's brilliant move that "shook up the industry."

Comments

Please, learn to summarize

[itsenrique]

No one wants to read this much about a service that didn't work by Benny Horribleton.

Re:Duh.

[ganjadude]

I thought it didnt work because of bennetts annoying use of slashdot as his personal blog

A few thoughts on why this might have failed ....

[King_TJ]

I know someone, above, said "Hey idiot... it's about the lack of drivers!" I'm not going to even attempt to speak to that, because I don't know enough details to know if Sidecar's business model would attract "enough drivers" or not?

Off-hand though, I do know I've taken shuttle buses before where the driver only accepted cash and charged around $8 to drive me to an airport from a hotel, and he didn't have more than 1 or 2 other passengers when I got on the bus. So that tells me that yes, some people will gladly drive you around for lower rates than are charged by a typical taxi service or Uber.

I think one of the big obstacles to a Sidecar type business might simply be the fact that you're expected to essentially "make an offer" for what you'll pay. If you advertised a fixed rate that was clearly almost 50% lower than the competition -- it would probably do a booming business (provided it was advertised sufficiently, etc.).

I know where I used to live, several restaurants experimented with a "pay whatever you like" program for food, and truthfully? A large percentage of people who'd otherwise eat there avoided it while they did that. I think that's because, by and large, Americans are adverse to haggling/negotiating on prices. Sure, we have a culture that expects it'll happen on BIG purchases like a car or a house -- but for the "every day" stuff, not so much. (Even with cars, people are flocking to the "no haggle/no pressure" pricing models.) Even with something as simple as hiring a babysitter for a couple hours, people are always hesitant when the sitter says, "Just pay me whatever you think it's worth." Will you offer too little and offend the person, or cause them to prefer not to work with you in the future? Will you pay more than most people, essentially ripping yourself off?

Now add the fact that with a need for a ride someplace, you're probably in a compromised position. This isn't like going out to dinner where ultimately, you can just take it or leave it. You probably have a real NEED to get someplace by a certain time deadline. The last thing you want is to be late, simply because you didn't offer enough money vs. the next guy for a ride and got ignored.