Lyft introduces Uber-style surge pricing, urges us not to call it that

By Carmel DeAmicis , written on November 22, 2013

From The News Desk

Uber and Lyft have long been polar opposites in the urban transportation wars. Uber is the Ritz and Lyft is couch surfing. Uber is Paris Hilton and Lyft is Nicole Richie. Larry Ellison and Reid Hoffman. Umami Burger and In 'n Out.

Uber is all about seriousness, decadence, and luxurious convenience you can afford. As the founders have put it countless times, it's a way everyone can travel like "a baller." Everything about the brand mimics that, from the Porsche-like logo to the comfy leather seats.

Lyft on the other hand, is all about community, casualness, and letting the good times ride. Witness the pink mustaches, fist bumps, and donation-based payment systems. In Ubers you sit in the back. Like a reverse-mullet, the party in a Lyft is in the front.

Recently, though, the lines are blurring -- with Uber heading downstream and Lyft heading up -- and that has to worry some riders and drivers, particularly in the Lyft camp.

For example, Uber introduced a ride sharing product, UberX, in 2012. Uber has even chased Lyft into new cities, just to undercut them.

That's not a huge shock. Uber CEO Travis Kalanick has clear ambitions to own urban transportation and doesn't like to share. The bigger surprise is that Lyft has started to move in the other direction: aping Uber, in both good ways and bad.

Here's an example that might fit in some observers' "bad" column: Last week, Lyft announced it will be rolling out surge pricing during times of high demand. Surge pricing was one of the key Uber innovations. It's also one of Uber's biggest black eyes: Surge pricing during Super Storm Sandy forever changed sentiment around the company from scrappy underdog fighting unfair legislation to cold, libertarian disrupter.

Even the unflappably smug Kalanick acknowledged they may have to change the name "surge pricing" after the public drubbing. (Just the name, though, not the policy.)

Since Lyft riders and drivers are frequently making a choice against Uber, how will they respond to their friendly, pink-mustachioed pal's new policy?

The worry has occurred to Lyft co-founder and President John Zimmer. "Please don't call it surge pricing," he says to me during our phone interview. For now, the company would rather we use the in-no-way preposterous moniker "Prime Time Tips." At the moment Lyft is testing out Prime Time Tips in LA, hoping to introduce it to San Francisco in a month or so.

Still, there are some differences between how Lyft will execute increased prices during high demand and how Uber does it. First, Lyft says it will turn surge pricing off during any crisis period, and its fares will only increase 25 percent, whereas Uber's model supports unlimited increases, depending on demand. Perhaps most importantly, the drivers will keep all the extra money, unlike Uber, where the company scarfs down a 20 percent cut.

"It's different -- it's the Lyft way of doing things," Zimmer says. "We wanted to make sure our incentives were aligned with every member of the community: Drivers and passengers."

Fair point, but this is a shift towards Lyft becoming more of a defensible and scalable business, and we'll likely see more of these kind of tweaks. Subtle arguments like the one Zimmer makes aren't always parsed well when it comes to a warm and fuzzy Web company becoming more corporate. (Just ask Facebook and Instagram.)

Ann Miura-Ko, a Lyft investor and co-founder of the Floodgate Fund, argues that people won't understand how Lyft's Prime Time Tips differs from Uber's surge pricing until they experience it. "Even as Lyft was launching people would say, 'Oh this is a cheaper Uber,'" Miura-Ko says. "But it's not. The experience of being in a Lyft is so different. We have to test it in the wild for people to see it has this really special Lyft quality to it." That's not exactly scalable PR.

Lyft's biggest asset right now is that it's the anti-Uber. Instituting the most Uber-like policy imaginable is risky, no matter if it's called gouging, surge pricing, Prime Time Tips, or Happy Fluffy Rush Hour Hugs. Giving those who can afford it precedence in times of peak demand just isn't the egalitarian Lyft way, it is the capitalistic, market-driven Uber way.

The truth is Lyft has perfectly valid business reasons for introducing a system like this. The same reasons as Uber in fact -- to get more cars on the road during peak hours.

Since Lyft launched, the customer demand has been continuous. The company has struggled -- and ramped up its marketing efforts -- to attract enough drivers. Prime Time Tips will entice drivers onto the road when they otherwise might not want to be there. "No matter what, as we continue to catch up there's always a natural imbalance of time when everyone wants to be out having fun," Zimmer says. "That means everyone, including our drivers, will want to be out having fun." It's expressed in a more Lyft-y way, but the sentiment is identical to what Kalanick said after instituting surge pricing during Super Storm Sandy.

I spoke with one Lyft driver who said he was happy to hear about the new pricing system because he had been considering switching to Uber. He prefers Lyft's community of customers who sit up front and often enjoy chatting with drivers. But his friends who worked for Uber make more money. For most people this is a job first and a lifestyle second.

Drivers are essential in this urban transportation battle, but Lyft should be wary of getting into a bidding war with Uber, a company that has no problem overpaying to tank a rival.

The key to communicating the difference in Lyft's approach to surge pricing isn't giving it a name that sounds like it's describing a television schedule, nor is it waiting for customers to experience it. It's much more simple: The company should repeat over and over again that Lyft drivers keep all the extra money from Prime Time Tips.

Because no matter how close these companies veer towards one another, Uber will never be able to resist taking its cut.