Rideshare Drivers Strike

Looks like unions are trying to kill Uber and Lyft at a critical time in their corporate development.

Rideshare drivers are striking and protesting in major cities across the United States, with many participating in a 24-hour strike of the Uber and Lyft apps that began at midnight on 8 May.

Cities affected by the stoppage – which varies in length from two-hour strikes to day-long boycotts – include Los Angeles, New York, San Francisco, San Diego, Philadelphia and others. Strikes are also expected overseas in Britain, Australia and elsewhere.

The protests come the day before Uber launches its shares in a public offering on the US stock exchange.

The 4,300-member Rideshare Drivers United in Los Angeles is picketing outside Los Angeles international airport throughout the day in addition to participating in a 24-hour strike.

“All of us had to guess when Uber’s [share launch] was, knowing this would be a key moment the public, investors and elected officials would be looking at Uber to see what kind of company it is, and we knew the voices of drivers had to be elevated in this. And that’s why we chose this time to organize,” said Nicole Moore, a part-time Lyft driver and organizer with RideShare Drivers United.

I have used both Uber and Lyft extensively. I used to be an Uber guy, but I switched to Lyft because I can get Delta Skymiles using Lyft. The friction of their growth is being driven by the new business model. Remember that Uber and Lyft are not cab companies with a labor force. They are simply apps that connect a transient labor force with consumers. The key to the financials is that they have to make the price low enough to be acceptable for consumers while also providing enough money to attract enough drivers to fill demand. The apps serve as real-time supply & demand measurement devices and seek to hit the sweet spot for maximum profitability.

Frankly, they aren’t working right yet as evidenced by the fact that neither Uber or Lyft are profitable. Meanwhile, as a customer, I can tell you that the pricing is OK, but not vastly better than a cab in most cities. And depending on the city, the customer experience is very uneven. Some Lyft and Uber cars and drivers are great. Some are pretty shabby. What keeps me as a customer is the convenience and transparency of the app and the easy receipts for business expenses. But I have been at an airport more than once and jumped in a cab when the app tells me that the driver is 10 minutes away. Again, it’s about convenience.

Back to the strike… remember that Uber and Lyft were never set up with the intention of having full-time drivers. The drivers are supposed to be people with other jobs who choose to drive from time to time to make some extra money. In order to attract these workers in the Gig economy, Uber and Lyft have to set the rates high enough to attract drivers. What SHOULD happen is that if enough drivers look at the rates and decide it isn’t worth the effort, they just don’t log on. If Uber and Lyft can’t attract enough drivers, then they will have to raise the rates. The problem is that they can only raise prices so much before customers balk. Meanwhile, Uber and Lyft are both struggling to be profitable taking a cut as the facilitator. Now that some of the Uber and Lyft drivers are unionized and treating their labor as a full-time gig instead of a side hustle, it increases the upward pressure on driver rates and aggravates the problem.

So at the root of it all, we have to question whether, after all of the hype, are rideshare businesses structured like Uber and Lyft a sustainable business model? Perhaps this opens up the market for new entrants who will find another model. The problem is that people who travel a lot don’t want 15 rideshare apps on their phones. The cab companies have come to the table (late) with a pretty decent app that provides the convenience of ridesharing with a dedicated labor force. Is that the answer? Maybe. The problem with cabs that Uber and Lyft sought to fix was the convenience and quality. The Curb app addresses the convenience and the competitive pressure has helped equalize the quality.

We are going to know a lot more in a couple of years. As public companies, Uber and Lyft won’t have the same ability to raise capital if they can’t get profitable. And one inevitable recession will shake out overly-optimistic investors.