Apr 2, 2024 - News

Big challenges await Minneapolis' would-be replacements for Uber and Lyft

A white man in a suit jacket and blue button-down shirt gestures in front of a group of people holding up recording equipment, cameras and phones.

New York City-based Drivers Cooperative co-founder Erik Foreman at a Minneapolis news conference to announce plans for a new startup cooperative in the Twin Cities. Photo: Kyle Stokes/Axios

They might not need to compete with Uber and Lyft, but industry observers say the new platforms lining up to replace the ridesharing giants in the Twin Cities will still face big challenges.

Why it matters: If Uber and Lyft leave on May 1 as they've threatened, the livelihoods of the metro's 8,000 rideshare drivers will hinge on the new companies' ability to clear business, regulatory, and technical hurdles.

What they're saying: "You have to be careful of assuming that your [upstart company's] unit economics are going to be any better than Uber or Lyft's," venture capitalist Bradley Tusk, who advised Uber's early political campaigns, told Axios.

Driving the news: Activist drivers last week announced their partnership with a New York City-based company, Co-op Ride, to launch a driver-owned ridesharing platform in Minnesota with a "target date" of May 1.

"We believe in competition," said Eid Ali, president of the Minnesota Uber and Lyft Drivers Association (MULDA). He said the two companies' lock on the market has prevented drivers from earning higher, livable wages.

Here are the key challenges these new rideshare companies will face.

  • Scaling up to meet demand. Uber and Lyft currently give more than 1 million rides in the Twin Cities every month. MULDA's new partner has given 300,000 rides in New York City throughout its entire three-year history.
  • Ridesharing "is not a wildly profitable business," said Tusk, noting that 2023 was Uber's first year ever in the black. For the new companies, the risk that the Minneapolis ordinance gets overturned could also limit their ability to attract investors.
  • Replicating 'the network effect.' Uber and Lyft connect huge pools of riders with huge pools of drivers. Upstart rideshare companies have historically struggled to retain drivers without the same ability to guarantee work for them, said ABI Research analyst James Hodgson.
  • The technology must work. After Uber and Lyft briefly pulled out of Austin, Texas, in 2016, even the most successful replacements "had vastly more ride request volume than they could possibly meet with their server bandwidth," said ridesharing consultant Jeff Kirk.

Zoom in: One new rideshare platform that intrigued analysts

Empower is one Uber/Lyft challenger considering coming to Minnesota whose growth has intrigued some analysts β€” but they've also drawn ire from city officials.

By the numbers: In March, "a few thousand active drivers" provided more than 250,000 rides in Washington, D.C., through Empower, CEO Joshua Sear told Axios.

What they're saying: Sear said he helped found the company because "I was hearing from so many drivers about how they were getting just hammered financially, couldn't make a living, and felt voiceless."

How it works: Unlike Uber or Lyft β€” which takes a percentage of each fare β€” drivers pay Empower a monthly fee to book rides through their app.

Between the lines: "Empower is considerably further along than I expected," Kirk said. "Their subscription-based model is a savvy one."

The intrigue: Sear said Empower is "not a transportation company," but a "software company."

  • Sear compares his company to Expedia or Kayak: Just because users can book a flight through those platforms doesn't make Expedia or Kayak an airline.

Friction point: Since the upstart rideshare platform doesn't consider itself a transportation business, Sear argued there's no need for his company to apply for Minneapolis' license for ridesharing companies.

  • He also said Minneapolis' new driver pay ordinance would not apply to Empower. However, Empower lets drivers set their own rates, and he said it was "unlikely" drivers using his platform would choose to charge less than the ordinance's minimum.

Zoom out: The D.C. Court of Appeals disagreed with Empower's reading of the law. City officials there have also issued warnings urging the public not to use Empower.

What we're watching: In Minneapolis, three companies have submitted applications to become city-licensed ridesharing companies, said city spokesperson Casper Hill.

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