Slashdot Mirror
Why Didn't Sidecar's Flex Pricing Work?
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."
It didn't work because they didn't get a Slashvertisement soon enough.
Squash
I did not click on "read more" to read what Bennet has to say.
Why is an opinion column being presented as "news"? There's nothing here to suggest that any research or study has been done, it's all Mr. Haselton's opinion of what he thinks is happening. Either stop branding yourself as "News for Nerds", or stop running opinion columns under the guise of "News".
What an idiot. He spells out the whole thing but can't see the big picture. Sidecar is hampered by a lack of drivers. Drivers are making more money on Lyft and UberX, so that's where they go. And those companies also have better marketing departments so they get more business. It's really not that complicated.
My life is more important than saving a few bucks by allowing a stoned 16-year-old to drive me around town in a rainy night.
I don't need to read this to tell you why it didn't work. in my area we had sidecar service but didn't have too many cars. in theory, with flex pricing, boom, creates more incentive and we get the cars we need. instead, nobody wanted to drive over here regardless, so they all tripled their prices. a short ride went from $5 to $15. This made them way overpriced compared to Lyft and Uber.
I applaud Sidecar for trying something innovative. Flex pricing is a great idea in theory. if a driver has a sweet car, he can try to extract a couple bucks more. Similarly if the driver is a she and a hottie. if a driver wants to boost volume he can take a couple bucks less. but in practice it did not help increase service or competitiveness in my area. it's a shame cuz I really liked sidecar, they were the "funnest" of the three services.
>> Why Didn't Sidecar's Flex Pricing Work?
Because they hired Bennett Haselton to promote it, and the target audience died of thirst waiting for BH to finish his pitch.
Now, most economists would say that raising prices during periods of high demand is what suppliers should do, for various reasons.
In the UK, a few years ago they had a "petrol strike" where drivers refused to transport fuel to petrol stations. Panic ensued. One owner of a petrol station who still had fuel left decided to double the price.
Three days later the strike was over. Two months later, the station closed down, bankrupt.
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.
You're not the market for this app then.
I'm probably not either. I just want to know how much is it to get me from (A) and (B) with the least fussing and hassle. If it's a good deal, and it makes sense, I'll do it.
lawl, he thinks consumer purchases are exclusively inextricable to the objective merits of a product/service, and results are a direct reflection of said merits
allow me to break that illusion:
"apple"
its about the clear abuse of slashdot by this one person trying to use the site as their personal blog.
Slashdot itself started as Rob Malda's personal blog.
If people want to read his stuff, there is a section in the site under the user name that allows him to write his crap, and his friends to see his crap.
And for each journal entry, there's an option to post it as a submission. Or do Bennett's journal entries skip the submission queue?
It didn't work because drivers quickly realized they would be forced down to the lowest price that someone was willing to pay, and they can make more working for Uber.
This may be fundamental to the variable pricing model. It takes time to negotiate a price, and as the well-known adage goes, t=$.
Ugh, the lack of knowledge regarding economics in this article is shocking. I won't hit all of the issues, but these two stood out:
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.
I don't know what "Economists" are being referred to, but no one I'm aware of puzzles over this. Electronics such as phones and game consoles are a highly competitive market. Sure, people may line up at release to buy an XBox, but a game console has a multiple-year life cycle and the lines only happen the first week at release. MS is playing the whole life cycle, and people are not lining up to buy game consoles during it's several years of life. Same with iPhones; a new release may have people line up but that's simply the passionate early adopters; the iPhone is an ongoing family of products with new releases over time; raising the price may be nice to consider on a new release but the long term damage to the brand/family of products could be existential. Economists do take this into account by removing time from their models and aggregate demand across a product life-cycle, or take into account surge interest in time-based models and use a moving average over time to reference real life data.
Now, most economists would say that raising prices during periods of high demand is what suppliers should do, for various reasons.
Yes, and they wouldn't do it the way it's described in this article. The answer is even mentioned in the article without even realizing it: it's because customers don't know Sidecar exists! So the problem is that consumers simply do not have perfect information, which is both normal in nearly every market and also extremely hard to rectify. Good economists can actually model imperfect information on the part of the consumer and make predictions on what would happen, such as exactly why Sidecar is not as successful.
This article attempts to explain a highly complex market with basic economic theory you learn in a beginning microeconomics class, but no one in their right mind would even consider the assumptions made.
I hate to give any answers when Bennett has already provided several pages of answers to his own question, but...
It failed because success has nothing whatsoever to do with the business model, or economics, or novelty, or any of the things that people traditionally tell you matter. It failed because someone else had a similar product but with better marketing. The hype drove that industry, not issues of economics or convenience. Once Uber become the fashion then everything else was destined to lose.
Who gave Bennett unlimited mod points?
Let's take a look at comments modded as Troll in past Bennett articles:
2014 Geek Gift Guide 2 comments marked Troll, both of them by Bennett
An Algorithm To Prevent Twitter Hashtag Degeneration 5 comments marked Troll, 3 of them by Bennett
Clarificiation on the IP Address Security in Dropbox Case 1 comment marked Troll
Big Talk About Small Samples 2 comments marked Troll, both of them by Bennett
Debunking a Viral Internet Post About Breastfeeding Racism 0 comments marked Troll
We Need Distributed Social Networks More Than Ello 0 comments marked Troll
An Algorithm to End the Lines for Ice at Burning Man 0 comments marked Troll
Now look at the mods on comments in this article - 40 comments have been marked as Troll. And most of them are comments badmouthing Bennett. Slashdot, you have some 'splainin' to do.
That's arguably true... I think your point has a lot of merit.
I don't think it's the whole story though.
Uber is "trendy", without a doubt. But people still only use it because they have a real need to get from point A to B. I think people like to do that at the lowest possible cost, as long as we're talking "apples to apples" types of transportation. (You might well pay more to ride in a car than take a cheaper bus that gets you to the same place, but that's because of all of the disadvantages of using a bus instead of a car.)
So no... I don't know that everything else like Uber was "destined to lose". I think competitors that couldn't differentiate from Uber in any meaningful way were destined to lose though. (That's why Lyft is struggling.)
A service like Uber that has an equivalent app and costs 50% less though? That has room to compete, potentially.
(But whatever.... for SOME reason, Slashdot readers decided I was "off topic" and got modded down for adding my own thoughts about the topic.)