Axios Pro Rata

Ride-hailing service The Drivers Cooperative recently debuted in New York City, claiming that its lack of VC funding would result in better driver pay and lower passenger costs.

Why it matters: TDC’s approach is a direct rebuke to the venture capital-fueled gig economy model.

• The current shortage of ride-hailing drivers also hints that some may be rethinking whether the job meets their needs at all.

Details: The organization is incorporated as a “worker cooperative corporation” and currently lets every signed-up driver enroll as a member of the co-op, which means receiving one share in the company and one shareholder vote.

• The co-op takes a 15% cut of rides (compared to Uber and Lyft’s roughly 20%) to fund its operations, and any leftovers at the end of the year will go back to drivers via profit-sharing.
• The company says its drivers currently make on average about 30% more than they would driving for Uber or Lyft, and that riders pay slightly less.

The big picture: A number of companies have tried (and often failed) to reform the model popularized by Uber and Lyft, including:

• Juno: The NYC-born startup promised it would give drivers equity in its company. It eventually sold to U.K.-based Gett and backtracked on its equity promise because regulators wouldn’t allow it.
• Austin’s indies: A crop of upstarts, including a nonprofit and a Facebook group matching drivers and riders, emerged in Austin a few years ago when Uber and Lyft ceased operating for a year.
• Dumpling: The startup, which charges drivers a monthly fee for using its app instead of taking a cut from each transaction, recently expanded into ride-hailing after getting its start in grocery delivery. Unfortunately, it’s reportedly also run afoul of some workers with changes made to its apps.

Between the lines: “We’re actually selling things for the price that they cost,” says TDC co-founder Erik Forman, adding that Uber and Lyft’s lack of profits are a sign that their approach isn’t actually working.

• The argument for the venture-backed model has been that it takes a lot of upfront capital to set up operations and grow very quickly to capture market share and compete with rivals.
• That’s also meant price wars on all fronts — including price cuts for riders and earnings bumps for drivers — which has mostly been financed by venture capital for the first several years of a company’s life.
• TDC has only raised about $300,000 via mostly debt and is preparing to raise just over $1 million.

And it’s not the only one to take this approach. Driver’s Seat, an app for drivers to collect and analyze data about their hours and earnings, is also set up as a cooperative. While free for drivers, it sells access to aggregate data and insights to municipalities.

• Co-founder Hays Witt says the aim is to give drivers back some ownership and control over their work data.

Yes, but: It remains to be seen how a smaller, local upstart can fare in the face of multibillion-dollar public companies that are already household names.

• While its brand can certainly appeal to many drivers’ and passengers’ sense of using a more “ethical” service, some will undoubtedly prefer convenience or sticking with the familiar.
• And while Forman sees the technology as a commodity, companies like Uber and Lyft spend tremendous resources on developing, maintaining and fine-tuning their apps to keep drivers and riders happy.

The bottom line: Uber and Lyft proved there’s a market for smartphone-enabled urban transportation — but the quest to meet that demand via a radically different approach to business is ongoing.

Uber and Lyft’s latest controversy is that in many U.S. cities, prices of rides remain high even as pandemic restrictions have largely been lifted, while drivers feel they aren't getting their share of these price bumps.

Why it matters: Once again, it comes down to the companies’ decisions in 2016 to separate how they charge passengers from how they compensate drivers.

• While a passenger is quoted a trip price upfront using one formula, the driver’s earnings from that trip are calculated using a different formula — and whatever bonuses they get as incentives during a time of short supply are also separate from whatever surcharge the passenger is paying.

A recent Washington Post article that concluded that “drivers aren’t getting their fair share” reignited the debate over this practice.

• It also prompted Uber CEO Dara Khosrowshahi to disclose that U.S. riders spent 1.7 times more between January and May and that gross pay to drivers in that period increased 1.8 times. He added that while fares went up 27%, driver pay per trip grew 37%.

Yes, but: This won't last forever (and even very long). As soon as the companies feel they've regained their driver supply, the bonuses will decrease.

• And more importantly, it highlights the continued tension between the ride-hailing companies’ need to turn a profit and the drivers’ discontent with their earnings and the lack of transparency.

The bottom line: Debates over pricing and driver earnings will never end.

A flyer in my mailbox last weekend for a new mobile app promised to deliver me grocery items within 10 to 15 minutes. Named Food Rocket, and available in a section of San Francisco, it’s the latest in a slew of similar apps cropping up in the U.S. and abroad.

Why it matters: Startups and VCs are far from done with on-demand services.

How it works: On Wednesday, I ordered a few items to test Food Rocket, which also promises no delivery fees or order minimums and was touting multiple, limited-time discounts (I even added a couple of extra items at the end because my order was initially under $2). It arrived seven minutes later.

• The company, which raised $2 million in April — from AltaIR Capital, Baring Vostok fund and the Angelsdeck group of business angels, including Philipp Bashyan — currently stores its inventory at three locations in the city, strategically situated so it can hit its 15-minute delivery maximum. It has already signed leases to expand to Los Angeles and Chicago, founders Vitaly Alexandrov and Jerrin James told me.
• Food Rocket’s delivery workers are full-time employees of the company, make guaranteed earnings and ride e-bikes (presumably to avoid getting too tired from the city’s hills).

The big picture: A number of these fast-delivery services have cropped up around the world and in dense U.S. cities like New York.

• The idea is not too dissimilar from so-called ghost kitchens, another growing trend over the last few years, where restauranteurs make meals to be delivered to customers without having retail space for diners.

Yes, but: It’s unclear if this new breed of on-demand delivery startups have margins that are any better than their predecessors.

• An order for a single avocado, for example, is unprofitable for the company, Alexandrov admits. And the current discounts and lack of delivery fees will likely change as the company becomes more established.
• So it’s a game of volume and scale — the math will only work out if and when the company hits a level of efficiency.
• Of course, Alexandrov assures me it’s possible, pointing out that similar companies in other countries have been able to achieve profits. The company also plans to eventually generate revenue from product ads in its app, he adds.

• Can a Worker-Owned App Pull Drivers From Uber and Lyft? (Curbed)
• Instant Grocery Services Find Fast Lane to New Yorkers’ Fridges (WSJ)
• Gopuff launching an ads biz (Axios)

Ride-hailing companies have used some novel marketing tactics over the years to shape their brand and attract customers.

• Question: What was Lyft's brand best known for in its first few years? (Answer at the bottom.)