Actually, Lyft's Prime Time Tips is almost exactly like Uber's Surge Pricing

By Carmel DeAmicis , written on December 19, 2013

From The News Desk

A few weeks ago, I wrote about Lyft's new pricing policy, discussing the three big differences between Lyft's perkily-named "Prime Time Tips" and Uber's more ominously titled "Surge Pricing."

In summary...

1) Unlike Uber which takes a 20 percent cut, Lyft won't keep any of the money from Prime Time Tips. It will all go to the drivers themselves.

2) Unlike Uber, which happily institutes Surge Pricing during emergencies like Hurricane Sandy, Lyft promises to shut off Prime Time Tips during times of crisis.

3) Unlike Uber, whose rates regularly double or triple during surge pricing, Lyft will cap Prime Time Tips at 25 percent. It turns out I was wrong about the third part. Weeks after publication, Lyft has reached out to clarify their policy. Yes, Prime Time Tips are capped at 25 percent, but only for an initial trial period. Once the "feature" rolls out to actual Lyft users, though, Prime Time rates will go as high as needed to balance the driver supply and customer demand.

That's an important fact, and one that Lyft President John Zimmer chose not to highlight when I spoke to him for the original story. Perhaps because the prospect of unlimited surge pricing... er... prime time tipping is not something Lyft riders are going to be terribly pleased about.

The new information sheds light on Lyft's happy-fluffy-tipping time, and goes against the company's image as a friendlier, cheaper alternative to UberX. Lyft doesn't have the lush-baller brand of Uber, nor are they the fast, professional brand of a taxi company. They're about community, egalitarianism, and yes -- affordability. They're the socialist to Uber's capitalism, and supply-demand surge pricing is not a fit with their wheelhouse. Except that it turns out they're not, and it is.

During a followup phone interview, John Zimmer disagreed. "We were very thoughtful with how we designed the product because we want to do right by the community," Zimmer says. He pointed out that since Lyft makes no profit off Prime Time -- it all goes to the driver -- it's clearly not a money grabbing move. "We have no incentive to do this if passengers would rather we not do it," Zimmer explains.

That said, the company should feel more than a little nervous about how this will play out with its customer base. After all, even Uber's riders are fed up with the company's surge pricing. They're suspicious of the algorithm, since surge pricing seems to be happening more and more frequently. They're tired of paying double or triple "just because it's a Tuesday." People are floating conspiracy theories that certain parts of town are set to permanent surge pricing. Even celebrities like Josh Groban have had enough.

Uber's surge pricing sparked massive debate in the Twittersphere this week following surge pricing during a snowstorm in New York, and the publication of a Wired interview with Uber CEO Travis Kalanick. One tweet fight in particular, between a VC at Spark Capital and a CEO at a publishing startup, brought up a good point for Lyft to consider.

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"If it is excessive, a competing service will benefit." With growing dissatisfaction from Uber passengers, now is the time for Lyft to make its case. It's not gouging its customers with 7x the rate (yet), so why not consider switching to ride with Lyft?

Even if Lyft has to institute Prime Time Tips for its business model, it would benefit mightily in terms of PR by capping the Prime Time Tip rates. A big part of the reason Uber users get frustrated is because the cost can sky-rocket, sometimes up to seven times higher, just because the weather sucks.

If Lyft ate some of the surge pricing cost itself -- an Amazon-like suggestion that Sarah Lacy made to Uber -- it would help Lyft maintain its community-focused reputation. That way, it ensures it keeps people's loyalty until it has solved the supply-demand equation.

It's not like Lyft or Uber is lacking in capital to do that, with Lyft having raised $82.5 million and Uber having raised $307 million with roughly $213 million in revenue per year.

Zimmer says Lyft hasn't completely written off the idea of capping its Prime Time Tips at some point. "We're still in the very early stages of this new product. We're listening to the community and seeing how it works and adjusting on the way," Zimmer says. "No matter what, we'll always have the most affordable ride because we're not taking any amount from that [Prime Time] increase."

That's not entirely true. Lyft may be the most affordable ridesharing choice compared to Uber's surge pricing, but taxis beat both companies. Taxi 'surge pricing' is formalized in advance, between the rush hours of 5 pm and 7 pm for example, and the cost is a few dollars more, not double or triple.

In some cases taxis are now more financially efficient than the innovative tech transportation companies. We've come full circle.

During the trial period, Zimmer says Lyft's Prime Time Tips algorithm has mostly set the increase at 25 percent, with a few times at 50 percent, and only once at 75 percent more. That's a far better deal than Uber's frequent two to three times rate.

If the surge pricing continues to get higher, however, Lyft would do well to be as transparent as possible about the Prime Time Tips algorithm. Tell people exactly how it will work: When it will kick in, how high it could go, what geographies get hit the most.

It's not a great sign that in the company's first round of publicity about Prime Time Tips, it conveniently forgot to tell reporters the 25 percent cap only applies, fittingly enough, for a limited time only.

Illustration by Brad Jonas