In ridesharing, it all comes down to the Benjamins

By Carmel DeAmicis , written on April 11, 2014

From The News Desk

When Lyft rolled out its version of Uber’s surge pricing, passengers heaved a collective sigh of disapproval. How could our old, affordable faithful turn to the dark side like this? Would raking riders over the coals really help put more drivers on the road?

For my part, I protested surge pricing mightily. Whenever the little Prime Time button appeared, I put my Lyft app away and used Flywheel to catch a cab instead. I didn’t believe surge pricing worked to even out supply and demand, so I didn’t want to support that business model in ridesharing.

But then, a few months later, the tables turned. Lyft invented something never-before-seen in the world of Transportation Network Companies: Happy hour pricing. It would be the opposite of surge pricing, with passengers getting ten to fifty percent off the rate if there were more drivers than riders. What a glorious deal.

At first, I assumed Happy Hour was a bit of a PR stunt and we’d rarely see such rates. But that's been far from the case. In the weeks following the announcement, the app has shown discounted prices seemingly whenever I opened it. Far more frequently than I have ever seen surge pricing notifications.

From a passenger perspective, this was a game changer, and not just because saving money is awesome. Seeing Happy Hour pricing delivers a jolt of happiness, helping Lyft show its riders that they are just as important to the company as the drivers.

Personally, the positive feelings associated with Happy Hour rates have even led me to start paying surge pricing. I wouldn't be surprised to learn that it's a common effect. It seems like a fair compromise, and a much more palatable business scheme since the price shift now goes both ways. In other words, I no longer feel extorted.

The business implications behind happy hour pricing are interesting. For one thing, it’s a way that Lyft has distinguished itself from Uber. Also, it’s a lot easier for consumers to believe the purpose of surge pricing is truly just to even out supply and demand when the rates can shift in the other direction too.

Not to be overlooked, this new pricing scheme comes after Lyft just raised its $250 million Series D, bringing its total financing up to $333 million, neck and neck with Uber’s reported $307 million war chest. Put another way, it’s further proof that in the ridesharing battle royale, having mountains of cash matters. Until now, Lyft was running on venture capital fumes, relative to its older, more mature challenger. It had to sit idly by as Uber slashed UberX prices, offered free UberX rides in Lyft’s new markets, and went after Lyft drivers with signing bonuses.

But in the weeks prior to Lyft announcing its huge Series D, it was able to roll out Happy Hour pricing — something Uber has not yet done. As a cherry on top, it slashed its rates 20 percent in all markets after wrapping up the Series D.

In the land of ridesharing, it's not just about pink mustaches versus swanky towncars. Recent evidence suggests that affordability is more crucial than ever before.

[illustration by Brad Jonas for Pando]