Uber and Lyft are without dispute the “kings” of rideshare transportation… at least in America. A new rideshare company competing against these two giants would have to do something outrageously different.
In the article referenced for this blog:
“Uber and Lyft have handily deflected any competition so far. Together, the two ride-hailing giants capture more than 98% of market spending, according to analytics company Second Measure.”
“…more than 98% of market spending…”
That means 98% of the money American passengers are currently paying for rideshare transportation goes to Uber or Lyft.
The new rideshare startup company featured in the referenced article, Nomad Rides, says they will give 100% of the passenger fare to the driver… sounds good at first glance… but drivers must cover 100% of the insurance liability and that means getting a commercial vehicle policy.
Insurance Required
Nomad Rides says they have a deal with an insurance company to reduce the cost of commercial insurance but after reading the article I was left wondering:
“As a driver, how much would a commercial insurance policy cost me?”
So of course, I opened my favorite web browser, searched and saw an estimate of $900 to $1,200 per year for commercial vehicle insurance provided the driver has a clean driving record. (https://howmuch.net/costs/commercial-auto-insurance)
Okay, not so bad, I’m paying just under $1,000 a year now including $19 a month for a “Rideshare Endorsement” so my insurance costs will be in the same ballpark.
On the other hand, Uber/Lyft insurance policies cover me, my vehicle, and my passengers when I’m headed to pickup an accepted trip and when I have passengers in the car. My personal policy (and Rideshare Endorsement) cover me before I accept a passenger trip.
I’m thinking I would not want my insurance covering a claim which included having passengers in my car… sounds messy with the potential to pull me into a passenger lawsuit with only the commercial insurance company at my side?
The rest of my expenses will be about the same because in this respect driving for Nomad Rides is the same as driving for Uber and/or Lyft.
So now I’m thinking:
“Ok… but how much will I earn?”
Nomad Rides Startup Focuses on College Campuses
Nomad Rides is currently only available in one place… Indiana University Bloomington. Passengers can request rides with a destination outside of the university area, but rideshare startup Nomad Rides is focusing on rides in and around college campuses.
Nomad Rides plans to launch at other Big 10 campuses again focusing on transportation in the general vicinity of campus.
So, the answer to my question:
“How much will I earn is… nothing because CU Boulder is not in the Big 10 Conference. But what about other drivers, in Bloomington and the other Big 10 campuses when they get Nomad Rides?”
“Nomad Rides says its platform charges riders 20% less while drivers earn 20% more, paying Nomad a flat monthly subscription—currently, $25 per month.”
Ok so Nomad Rides gets $25 a month from drivers but they aren’t taking a cut of passenger fares, drivers get 100% of the fares.
But wait a tic… passengers are paying 20% less (presumably over an Uber or Lyft fare) so let’s estimate $5 for each passenger fare (almost exclusively short trips) all of it going to the driver.
How Much Can I Earn with Nomad Rides
As a driver in Denver, Colorado (metro area population 2.8 million) I average over $20 per hour gross income.
Nomad Rides driver application would have to deliver average 4 passenger trips per hour and college students (not known for tipping rideshare drivers) would have to cough up at least an average of a couple of bucks per hour to match my current earnings as an Uber driver and Lyft driver.
Averaging four rides an hour… for hours at a time is a high bar to reach.
I’ve been driving for over three years and with over 13,000 lifetimes trips I average 2 to 2.5 trips per hour (short, medium, and longer trips.)
Once I averaged 5 trips per hour four hours in a row, but it was Parent Weekend at CU Boulder and luck was on my side with one trip connecting neatly to the next with each new pickup a short distance from the last drop off.
This level of “busy” has happened for me just that once in three years and while I have had similar “busy” experiences that last for an hour or two… I think a reasonable estimate driving primarily in a college campus area would be average 3 trips per hour… but that kind of volume is likely only in the evenings/weekends/and when big events are happening on campus.
Three trips an hour at about $5 a trip equals $15 gross income per hour… simply wouldn’t cut it for me.
I’d continue to driver for Uber, Lyft, and maybe if Nomad Rides was available in Boulder turn the Nomad application on when an Uber/Lyft passenger’s destination landed me in Boulder?
But probably not, because I would have to pay $25 per month not knowing if I would use the application at all? The first five Nomad Rides trips each month would earn me zero income.
I drive with the Uber and Lyft driver applications on because it increases my chances of getting my next trip sooner. I’m not going to turn Uber and Lyft off for the prospect of earning $5 rides. The Nomad Rides startup application would always be competing for my time as a driver with Uber and Lyft rides.
The real question I think the referenced article highlights is:
“Can any new company really complete with Uber and Lyft?”
After all the title of the article is: To Beat Uber And Lyft, This Startup Vows To Give Its Drivers The Full Fare
Nomad Rides has an interesting idea which could be compelling to passengers because all experts agree there is currently no loyalty among rideshare passengers, they want the cheapest ride from the driver who can show up soonest.
However, the rideshare startup Nomad Rides will be challenged to grow beyond their current college town business plan.
Competing with Uber and Lyft
Taking Denver, Colorado for an example city… I’d have to draw a square 45 miles long on each side to cover all of Denver and the surrounding suburbs.
That means a new rideshare company would have to attract enough drivers (and of course passengers) to cover an area of around 155 square miles because passengers expect to be picked up in about 10 minutes or less.
That’s a whole lot of drivers and in order to compete with Uber and Lyft for drivers there would have to be enough passenger trips requests to keep those drivers busy.
As the referenced article points out:
“For anyone that’s trying to compete, you have to come up with a different, compelling rider acquisition plan.”
The reality is if a new TNC (transportation network company) launched in Denver I would continue to run the Uber and Lyft driver applications and in order to get my services as a driver the new TNC would have to be the first application to offer me a trip. When I accept a trip request on one application I turn the other one off.
Add to that even if a new TNC gave me 100% of passenger fares they would have to charge passengers less to beat out Uber and Lyft which means I’d be earning 100% of smaller fares.
This article attempts to make the case that Uber and Lyft keep significantly more than 25% of the fare a passenger pays… I was pleased to see the article also says:
“Uber says it takes 25% of every ride…”
Drivers love to cherry pick trips attempting to prove that Uber/Lyft are taking 40% or more of passenger trips… but I’ve filed taxes as a full-time hours Uber driver and Lyft driver three years in a row and my experience is Uber is telling the truth… looking at a year of trips their average take from what my passengers pay is about 25%.
And what about Nomad Rides basic business model?
Crunching the Numbers for Rideshare Startup Nomad Rides
I like to tell my kids: “If you want to start a business you have to think about how much revenue you need to “keep the lights on” and pay you and your employees enough money to make the effort worth your time.
Nomad Rides startup business plan for income is exclusively drivers paying $25 per month… drivers keep 100% of what passengers pay for trips.
A hundred drivers pulls in $2,500 a month or $30,000 per year… not enough to pay a single employee.
Two hundred drivers would mean $60,000 revenue, enough to maybe pay one tech-employee but not enough to cover full benefits for a single employee which cost an average of 30% of an employee’s salary.
Double the number of subscribed drivers now you’ve got $120,000 gross annual revenue but you’ve also got 400 drivers covering one college campus.
All 400 drivers won’t be online completing trips at the same time but if even half are online at the same time would there be enough passenger trips on a single college campus to retain drivers and support the financial side of Nomad Rides’ startup business without any venture capital investments?
Sure, the “real money” comes when Nomad Rides scales up the business… but it will take more than a couple of employees to support all the college campus’ in the Big Ten conference… let’s say a more reasonable number of drivers per campus… say average 200 drivers; each paying $25 a month; times ten colleges… that’s $600,000 total gross annual revenue.
According to the article rideshare startup Nomad Rides was founded by two people… if both of them took $100,000 salary; plus another $60,000 for their full benefits package; that leaves $340,000 to pay other employees (two people are not going to be able to support 2,000 drivers, 10 colleges, and thousands of passenger trips per day) and office space, etc?
Maybe I’m missing something but if my kids pitched the idea, I’d tell them:
“Go back and think through the numbers again.”
In conclusion, my name for most of the new rideshare companies is: “boutique services.” Like rideshare for under 18-year-old passengers or all female drivers for all female passengers.
These companies may be able to carve out a niche for themselves, like Nomad Rides focusing on college campus transportation, but beating Uber and Lyft at their games… there are just too many barriers to entry primarily:
[1] attracting enough drivers to cover a medium to large market
[2] attracting enough passenger trips to retain the drivers
[3] pulling in enough income to “keep the lights on” and pay employees and owners enough to make the effort worth their while
I welcome rideshare startup Nomad Rides to the industry and wish them the best of luck.