Uber, Lyft Return to Austin With Tech Edge, But Upstarts Grew Roots

Austin—[Updated 5/25/17, 4:42 p.m. See below.] A year after Uber and Lyft had a bad breakup with Austin, the software companies are returning to town Monday. That’s thanks to Texas state law makers who last week approved legislation that wiped out the city-imposed restrictions that caused Uber and Lyft to leave in the first place. Like it or not, the ridesharing giants plan to return Monday, when multiple reports say Texas Gov. Greg Abbott is expected to sign the legislation into law.

For the seven other transportation services that filled the void left by Uber and Lyft, everything depends on how much lingering affection Austinites have for the two biggest companies in the industry. RideAustin, Boston-based Fasten, and five other transportation network companies (TNC) have been transporting riders since Uber and Lyft departed in May 2016, when voters decided to keep in place city mandates that required companies fingerprint their drivers and pay a per-ride fee.

Both Fasten and RideAustin believe they can continue attracting customers despite the billions of dollars that Uber and Lyft have at their disposal. For RideAustin, its status as a nonprofit and the option riders have to donate to charity make it attractive, says chief operating officer Marisa Goldenberg. Fasten believes users will still turn to it because the company charges drivers 99 cents or less per ride, which is lower than the 20 percent (or more) that Uber and Lyft typically take from each fare, says Fasten CEO Kirill Evdakov. Happy drivers means happy riders, he says.

One thing that won’t be a key differentiator, however: technology, at least for RideAustin, a nonprofit started by Austin tech entrepreneurs within a month of Uber and Lyft’s departure.

“Our app is never going to be as great as Uber and Lyft’s app,” says Goldenberg, RideAustin’s COO. The nonprofit employs about 25 people, compared to Uber’s reported 6,700 (these numbers exclude drivers). Even Fasten, which launched in Boston in 2015, and opened its only other branch in Austin as soon as the larger competitors left, only has about 135 employees globally.

Still, RideAustin is working to make technological improvements to its app, albeit with a small staff. In October, the organization added an option that allows female riders to select a female driver, and is soon launching a feature that reroutes a ride to a new driver if the previous driver cancels on a passenger, Goldenberg says. Technology aside, last week RideAustin provided a few charities with more than $200,000, based on donations made by riders, and the company is also planning a crowdfunding campaign to raise $1 million so that it might be able to hire drivers who are full-time employees with benefits, Goldenberg says.

“We have a model that seems to work and resonate with the Austin community,” she says. (It’s worth noting that Uber and Lyft have contributed money to at least one local nonprofit, The Texas Tribune, an online media company.)

But the RideAustin app, which was developed to look aesthetically similar to Uber’s, still doesn’t operate as seamlessly as Uber or Lyft’s. For example, its surge pricing is implemented manually, Goldenberg says. RideAustin engineers monitor data in an administrative tool about ride requests, and then manually flip on the surge in pricing, she says. The group wants to make it automated, like Uber or Lyft, but that’s not so easy with a barebones team.

“Those organizations have teams of PhDs and data scientists that are refining an algorithm,” Goldenberg says. “Is there room for RideAustin? We do believe so. I don’t know that there’s room for other TNCs that aren’t as differentiated and tied to the local community as we are.”

Evdakov, Fasten’s CEO, might disagree. He says riders will be attracted to Fasten because it gives more money per ride to drivers than Uber and Lyft and it operates a profitable business. Drivers can either pay Fasten 99 cents per ride, $15 per day, or a weekly fee that decreases as they complete more rides. RideAustin doesn’t charge any fee to drivers of standard cars, and is lowering its fee to 10 percent from 20 percent for drivers of larger vehicles, like SUVs.

Fasten is slightly cheaper than RideAustin, potentially earning it more ride requests; a $15.44 RideAustin estimated fare comes up at about $1 cheaper on Fasten. RideAustin’s Goldenberg notes that standard drivers who use the nonprofit’s app typically take home more pay than Fasten, including under surge pricing circumstances, during which RideAustin’s fees stay at $3 and Fasten’s increase. [Updated with additional comment from RideAustin.]

Fasten does have more experience in the transportation business. Though the U.S. operation was incorporated in 2014 by Evdakov and chairman Evgeny Lvov, the concept for Fasten actually stems back to a business Lvov operated in Russia.

Called Saturn, the business started as a transportation network for people who wanted to work as independent drivers, communicating with dispatchers over walkie-talkies, Evdakov says. By about 2008, apps began replacing the radios and people began requesting rides through the apps, instead of calling dispatchers, he says. Evdakov ran a marketing company in Russia and Saturn was a client, which led him to start Fasten in the U.S. with Lvov. Fasten’s $10.5 million in funding has so far come from Lvov.

Even with Fasten’s experience, Uber and Lyft have operated in the U.S. longer and have far more funding. That lets them offer subsidies to both drivers and riders, something that Evdakov expects to face in Austin when the companies return. That has happened in Boston, and Fasten has tried to compete by also offering subsidies, he says.

“We’ll have to do it at some point,” he says of providing subsidies in Austin.

Evdakov says Fasten has been able to achieve profitability in Austin and Boston with its current business model, and it plans to target new cities soon, particularly ones where Uber and Lyft already exist. Fasten believes it can attract the other companies’ drivers, who want to take home a larger portion of the fare at Fasten. That will subsequently attract more riders, he says. The company is in the process of raising $20 million in new funding to expand, Evdakov says.

“When the drivers are happy and support the service, riders feel it in their experience,” he says. “We are making sure that drivers are taken care of, and they will take care of our riders.”

One other way Fasten is trying to do that is by opening a lounge for drivers. The company leased a former gas station in East Austin earlier this month, which it plans to refurbish as office space for employees and a place where drivers can use the restroom or get refreshments.

Uber’s public troublesincluding various sexual assault and harassment allegations and its so-called upfront pricing offering, which stirred some recent controversy for seemingly earning Uber a larger percentage of the total fare—only adds to drivers’ discontent with the service, Evdakov contends. Meanwhile Lyft, which has tried to take advantage of Uber’s public opinion problems, isn’t actually much better, Evdakov says. Afterall, Lyft worked with Uber to get state legislators to repeal rules that citizens of Austin voted to keep, he says. (To play devil’s advocate, 44 percent of Austin voters voted in the referendum to not keep the rules, too.)

Both RideAustin and Fasten are more focused on their daily operations than the future of the industry. Neither currently has a plan, or use, for diving into fields that Uber has dipped its toes, such as autonomous cars—a business strategy that has still yet to be borne out as a profitable one, as Xconomy has previously reported. Evdakov says he can envision a way that self-driving cars could work for the industry if owners of driverless cars used apps like Fasten or Uber to lease their autonomous cars out to users for rides—similar to renting a room on Airbnb.

Despite both Fasten and RideAustin’s positive outlooks, there are only a few certainties right now. First, the city of Austin will no longer be getting 1 percent of each fare, something that the new state legislation outlawed. The bill, however, will allow the state of Texas to implement fees. Since May of 2016, the city of Austin says it collected $915,732 in fees from Fasten, RideAustin, Fare, Wingz, GetMe, and the few other smaller operators.

Next, new drivers that only plan to use Uber and Lyft won’t necessarily be fingerprinted. Since the Austin began requiring fingerprints as a part of background checks, the companies have checked 9,728 drivers. Both RideAustin and Fasten say they plan to continue to fingerprint any new drivers, however, a sign they say shows that their operations are ensuring passenger safety.

Finally, each of the rideshare companies will certainly lose some market share to Uber and Lyft, which offer consumers bigger discounts, sometimes lower prices, better technology, more engineers, and boast more money. In January, Austinites took about 480,000 rides. But will it be enough to run out Fasten and RideAustin, which each say they account for about 50 percent of the Austin market currently?

RideAustin may have a shorter fuse. The group says it can’t continue to operate if it drops below 20,000 weekly riders. RideAustin gives about 60,000 to 70,000 each week currently, Goldenberg says, an estimate that would indeed give it about half of the current market. Goldenberg says she has been happy to see so many companies use Austin as a test bed for transportation, and is excited about what RideAustin has been able to do.

“The folks that use RideAustin are taking it because of the charity angle, the nonprofit angle—we pay drivers more,” she says. “A lot of those attributes will help maintain that market share going forward.”

David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at dholley@xconomy.com Follow @xconholley

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