Lyft ends donation payments, launches surge pricing and East Bay service

By Carmel DeAmicis , written on December 24, 2013

From The News Desk

Last night, Lyft sent out an email to its user base announcing big changes. The company is launching service in the East Bay, from Oakland to Castro Valley. It's expanding its Los Angeles coverage to Pasadena, Long Beach, the San Fernando Valley, and Malibu. It's officially rolling out its version of surge pricing, called Prime Time Tips. And lastly, in California it's moving from a donation based model to requiring payments set by the company.

The moves are significant for Lyft and signal the evolution of the startup into a more mature company.

It's notable that Lyft is creeping quietly into the suburbs of Los Angeles and the Bay Area. Although it's not the first suburbs Lyft has hit (see: all of Silicon Valley), it will be worth watching to see how the service performs in areas that are more geographically expansive than dense cities.

I was surprised to come home to Pasadena for the holidays and see Lyft cars only five minutes away no matter where I was located. I had assumed it would take longer to order a car in the suburbs compared to San Francisco. I was wrong.

The second bit of news, that Lyft is switching to required payments instead of donations, is not a surprise. The company told the LA Times as much in November.

It originally operated on donations because ridesharing for pay wasn't legal. Lyft avoided problems by painting the service as a networking application with a voluntary tipping model.

But since the California Public Utilities Commission legalized ridesharing in September, Lyft can drop the pretense in California and switch to a mandatory payment rate. It's good for the drivers, who don't want to be stiffed on service. In other states where ridesharing is not yet legal, the model will remain voluntary donations.

Lastly and most importantly, Lyft is officially rolling out Prime Time Tips. We've reached out to the company for clarification as to whether that's just in California or if that's for all states in which Lyft operates. As we've covered, the company has been testing its version of surge pricing for roughly the last two months, first in Los Angeles and then Chicago and San Diego.

It's a big move for Lyft. As we've written about, it's one that signals it growing closer in business model to Uber, not farther away. Lyft's Prime Time Tips will kick into effect whenever there are more users requesting rides than there are drivers available. Rates will continue to climb starting at a 25 percent increase. Just like Uber's surge pricing, the price will go as high as needed until the supply and demand even out.

Uber's surge pricing has attracted its fair share of critics, and time will tell whether Lyft's Prime Time Tips will do the same. There is one big difference between the two models: Lyft gives all the extra money to drivers to try to get more of them on the road in busy hours, whereas Uber takes a cut from the surge pricing.

When asked whether he was nervous about customers reacting negatively to Prime Time Tips, Zimmer said he wasn't concerned. "Users gave feedback that they were frustrated they couldn't get a ride," Zimmer says. "They said, 'I wish I could give my Lyft drivers an extra five or ten dollars when there's no drivers available.'"

Zimmer pointed out that since Lyft takes none of the profits from Prime Time Tips, it has no incentive to continue the program if its community rejects the idea. "Because it's still in the early days we're figuring out what is best," Zimmer says.

Surge pricing and the end of donation-based payments. Not the best Christmas gift in the world Lyft.