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If Lyft can't keep its drivers as contractors, it may never be profitable (latimes.com)
82 points by pseudolus 45 days ago | hide | past | web | favorite | 122 comments

I'm kind of torn on this. My father has been truck driver his entire life and for the last 20 years worked as a contractor, while driving his own truck and trailer, since it gives him more $$$ than average driver who works as employee. However, he has non-existent social net. No health insurance, no pension benefits. If he out of work or has serious health issues that ground him for months, he has to dig into savings and I also have to help him.

So, if Lyft driver who was "gigging" for them for years gets sick and he is out of work, what kind of help would he get ? None, at least in US.

If he's earning more than average, and professional truck drivers are pretty well paid, then can't be purchase that social net himself?

He can buy health insurance, pension, group income protection, everything you mentioned.

I know poor people can't do that, and that's the issue, but why can't a well-paid truck driver do it?

The supply side dynamics of trucking is crazy. There has been a driver shortage for 10+ years, easy. About 2/3 of the trucks on the road are owned by fleets of 5 or less, with most trucks being a 1 unit, owner operator.

The entire industry, small and large fleets, use owner operators as perverse cost savings. In some cases, you lease the truck from the large fleet, they charge you for gas and maintenance, insurance, etc; deducted straight from your check. You integrate with their comms / cpu systems, their tracking systems, etc. all for a price. You go where they tell you and when.

It's an industry that's almost impossible to run profitably as an owner operator, because those folks are skinned. But, people are in love with the idea of owning their own business - it's kinda like an MLM that way.

Now, I founded a trucking company that had as many as 15 trucks that ran over the road, both owner operators and company owned vehicles. At my size, there were very few economies of scale and we ran at a break even, at best - closing after a few years. We paid teams .40 cents a mile, all miles, backing out the per diem and paying SS / payroll taxes on the balance - an ridiculously high workmen's comp (first year was 24%, went down to 16.5% later).

I could go into more detail, but you get the point.

I‘m not sure I get the point. So you‘re saying most truck drivers can‘t afford health insurance, income protection, etc.? Are they in the group of the „working poor“?

I would be very interested in the details. I keep hearing about friends of friends who pull $80,000 driving a truck, $120,000 when they own one and half a mil once they own a couple. Too lazy to actually do the research, but curious how close these claims are to the truth.

Obviously you are seeing a very different picture, and yours actually comes from experience.

Many ethnic enclaves have programs that get people their licenses and they get hired by trucking companies owned by folks from those enclaves. In my experience, thise types of drivers get between $500-$800 per week, cash.

The owner of the truck's pay varies based on how they acquired their shipments, direct to shipper or via a broker. Their is a huge spot shipment market for small companies, which fluxuates wildly, at times. Ultimately, the rates vary greatly.

Now, you can drive for a big outfit and make upwards of 70-80k gross, depending on experience, specialization, endorsements, etc.

Maybe they are quoting the money coming in before expenses like gas/lease etc? Maybe they put it an above average investment of time?

Actually, time is pretty strictly regulated by the DOT. No more than 60 hours duty hours a week, no more than 14 duty hours in a row, of which no more than 11 hours can be actually driving, and must go off duty for at least 10 hours to reset the clock.

Sounds more complicated than it is... once the duty period begins, any stops (fuel, breaks, meals, etc) do NOT stop the clock.

This is why most long-haul operations use pairs of drivers... one will sleep in the bunk while the other drives.

By most jobs definitions how much of an individuals waking life is consumed by work in this scenario over the course of a year?

Trucking is a little different. I'm not sure the current regs, but driving time is logged differently than "on duty not driving" different than off duty. Typically, drivers are paid by the mile, so on duty not driving is unpaid, while doing tasks like DOT inspections, vehicle walk around, fixing stuff, tire pressure, break adjustments, shifting trailer pins, etc.

Long haul teams can drive as much as 300+k miles per year. This typically consumes 50 weeks of being in the truck at least 6 days a week, simplifying at little.

>There has been a driver shortage for 10+ years

How does that square with the low net compensation of the drivers? Is there perhaps a secondary mechanism, other than the (asserted) labor supply shortage, that depresses the wages?

This is actually one of the cases where supply side economics breaks down.

People refuse to pay more for this and if you've invested so much for truck, car insurance, etc...

I am sorry, this doesn't make any sense to me. If "people refuse to pay more for this", it means there's either over-supply of service at the current price-point, or there are easily accessible, low-cost alternative services. There is no third way, barring country-wide air-tight collusion of all transportation buyers, which is an unrealistic scenario.

You don't understand this do you? When you've spent a ton of capital, have loans to pay, paying insurance, etc. You are not in a position to negotiate.

It doesn't make sense because we keep getting fed a simplistic view of "supply vs demand." That is a general trend, but not a rule.

If you know you have to work to keep your means of survival, you don't negotiate. We've seen salaries/bonuses/rates slowly go up, but there's always some other sucker who has to be able to pay their bills. Even if this means stuff getting to their destination later than usual.

A lot of truck businesses are owner operated, they simply don't have the means to say "no."

Every concern you mention is true for both sides of the market - seller and buyer. The buyer has spent a ton of capital on infrastructure and marketing, has loans and other bills to pay, and also has to provide service to their customers at good conditions - and timely - lest the customers go to their competitors. The buyer can't simply wait out indefinitely.

Unless there's a significant over-supply of the sellers. In which case the buyer can wait out any given seller, and get better deal from the next seller that comes around.

>If you know you have to work to keep your means of survival, you don't negotiate.

The very same concern goes for the buyers. They are just as well under the pressure of contractual deadlines and bills to pay.

I am sorry, but your post strikes me as example of "magical thinking" - "there must be something special about the owner-operated transport businesses". Yet nobody has provided any serious arguments towards that.

Just for the sake of contrast - you could imagine brain surgeons in the very same predicament. Suppose there were plenty of brain surgeons on the market - their prices (wages) would be very low, sometimes even below the costs incurred. No matter how pressed a patient would be for a life-saving operation, if there were multiple surgeons fiercely competing for this work, the price would be low.

The only reasons the brain surgeons are earning well is that the demand for service is higher than the supply - and there's little to no alternatives to a life-saving surgery.

You may balk at the example of highly skilled specialist surgeon, but it's true story of the eastern block [i.e., communist] countries, where supply of doctors was high, and the demand - which was only the state-funded healthcare - was fixed[1]. The surgeons earned rather low wages, and many supported themselves with bribes for access and expedited treatment.

Please don't tell us there's been "driver shortage for 10+ years". It's just fantasy.


[1] from the layman's POV "demand" for surgeries was high and nearly insatiable, but from the economics POV, demand with willingness to pay was fixed by the centralized healthcare planners.

To me, the question still stands: if people refuse to pay more for the service, then in what sense is there a shortage of the service?

Can you expand on what you mean by "supply side economics breaking down"?

A lot of trucks are owner operated. They can't afford to not work - even though they know they will be able to potentially make more money.

Owning a truck is a lot of maintenance - insurance, parking costs, etc. A lot of owners also have to pay lease, loans, etc. They can't afford to negotiate for better rates.

Just because there isn't a lot of supply doesn't mean that rates go up!

I can see that small businesses aren't in a great position to negotiate with large businesses. But if there were really a substantial shortage, you wouldn't have to engage in high-risk, high-stakes negotiation to get a better rate. People will offer you a higher rate to secure your service, if your service is _really_ in short supply.

If the people hiring these independent trucks can afford not to pay more, because they know someone else will take the lower rate, then there isn't a shortage. This could just about be the definition of whether or not there is a "shortage".

He probably can. However, there's a BIG difference in the cost and coverage he'll pay and get between what he has for options as a self-employed person doing gigs, and what he'd get on a group plan with a company, as an employee.

Here's some data.

I've been contracting for 4 years, and paying for my own insurance. Mediocre medical for a family of three:

Year 1 & 2: $970/mo.

Year 3: $1167/mo.

Year 4: $1410/mo.

$BIG_CLIENT just told me after 4 years, to fish or cut bait. I took a full-time position with them.

My cost for health insurance on the group plan? $560/mo. for the same family of three. The coverage? AMAZING by comparison.

Insurance options for self-employed people aren't the best, in my opinon. Costs are very high, coverage is crappy.

> My cost for health insurance on the group plan? $560/mo.

Is that the full cost, or is your employer also paying something?

That's his cost. The employer is probably paying twice that much more behind the scenes. Money they could otherwise be paying him.

Employer negotiated insurances tend to cost less than individually bought ones, because the employer gets a group discount. The larger the group, the bigger the collective discount.

Just like toilet paper, insurances are cheaper when bought in bulk.

Imagine the awesome coverage you'd get as a Lyft or Uber driver if you were actually employed by them.

More so than with toilet paper.

Suppose two people, Alice and Bob, are both shopping for medical insurance in a country like the US where there is no safety net.

Alice is basically healthy, except she seems to always catch everything. She got flu twice last winter, crazy!

Bob is proud to have never taken a day off in eighteen years.

You show them the same price, Bob winces, and decides he'll risk it without insurance but Alice, conscious that she always seems to catch everything, pays anyway.

Six years later Alice gets really sick, turns out her immune system was shot but she didn't know it. Insurance company loses money on her. She was a bad investment. Bob's still fine, touch wood.

Group insurance is cheaper because you're insuring Bob, who wouldn't have bothered except he's part of the group, as well as Alice, who it turns out was a high risk.

This is one reason why countries with universal healthcare don't bankrupt themselves the way typical anti-healthcare models suggest they should. A group with everybody in it is relatively cheap _overall_ to cover because it has loads of healthy people in it, and they don't need much healthcare, not just all the sick people who have no choice but to get into any system they can to avoid dying.

"We must, indeed, all hang together, or most assuredly we shall all hang separately". Maybe Franklin never said that, if he didn't he should have.

Money spent on healthcare for employees is untaxed, effectively a 30% bonus.

This isn't standard worldwide. In Canada, health, dental, and other benefits are considered taxable.

Not when health/dental premiums are paid by the employer.

Premiums are also untaxed if you’re self employed.

More anecdata: My company pay Regence $2000/mo for me+2, 3 employees + 1 spouse.

Regulators should set a minimum contractor comp that is significantly higher than the total cost of minimum wage + necessary other costs for security (pensions, healthcare). Obviously minimum wage for employees should also be required to include these benefits (if it doesn’t already).

Otherwise the minimum wage regulation is possible to circumvent with contractor arrangements.

A well-paid truck driver can't do it because in many states, such as NY, a comparable health insurance plan is about $800 a month [1], and that's before you even see the doc or pay deductible.

[1] I have a broker's license I don't use anymore

Earning = get more cash. From a total compensation perspective, you’re better off with a larger operator.

>more $$$ than average driver who works as employee. However, he has non-existent social net. No health insurance, no pension benefits.

And when those essentials are factored in, does he actually earn mire or less $$$?

On the plus side, can't an independent truck driver or an Uber/Lyft driver claim tax deductions for all business-related expenses? From talking to a couple Uber drivers, my sense it that many are aggressive with the definition of "business-related" and deduct most of all their expenses. Appreciating the downsides (need to provide for one's own health insurance and retirement) I don't often see this increase net pay discussed.

The only way you deduct most of your expenses is to lie on your taxes and risk prison. Your friends are probably either exaggerating or criminals of the white collar variety.

Furthermore say you are able to deduct $100 from your taxable income that you would have paid $30 taxes on you have saved the $30 not the $100 a tax deduction is a reduction on the amount taxed not in most cases free money remitted to the taxpayer.

Most peoples expenses are heavily weighted towards, food medical, savings, living space. Whatever they can deduct will be a small portion of their overall expenses.

So in turn you don't see this increase in net pay discussed because

A) Its not an increase in pay its a tax deduction

B) Its a small benefit that is absolutely dwarfed by the additional tax burdens + medical expenses.

In short its not discussed because its imaginary.

Deductions are not like free money. There is not so much an increase in net pay, that's why it's not talked about.

Seems like the problem here is that the various safety nets don't extend to such people in the first place. It would also probably go a long ways to curbing the "employ ten people for 4 hours a week each" strategy we see used to avoid similar obligations.

Is an ACA marketplace plan available to him? And subsides based on income? I know people in their 60s not yet on Medicare with $800/month premiums with $600/month tax credits based on their income, so their premium nets out to $200/month.

Yes none, at least from Lyft. Because its not Lyft problem to ensure health care, thats more of goverment job.

In the US, the government has somehow convinced us that it is employers' job.

> So, if Lyft driver who was "gigging" for them for years gets sick and he is out of work, what kind of help would he get ? None, at least in US.

Honestly, the same is probably true for most full-time and part-time employees in the US.

Employers are mandated to give health insurance to full-time employees after they reach a certain size in the US. So no, it is "probably" not true.

They're not required to pay you while you're unable to work. And aside from some fairly narrow exceptions in FMLA, they could just fire you for being sick.

How much help did he earn? How much does he deserve? The money a driver gets paid is the help. There is a market for non-fulltime jobs that would not exist at all if it was forced to be full time. Forcing Lyft to hire employees instead of contractors won't mean there will be more workers with a safety-net; it means there won't be any Lyft. That would be bad for both drivers and the people being driven.

> How much help did he earn? How much does he deserve? The money a driver gets paid is the help.

That seems naïve and inhumane. Compensation and benefits are understood to be separate things in the US at this time. From social security to health insurance, the costs of securing such things without an employer (an entity on the other side of the wealth gap, usually) are often untenable.

> Forcing Lyft to hire employees instead of contractors won't mean there will be more workers with a safety-net; it means there won't be any Lyft. That would be bad for both drivers and the people being driven.

The choice between untenably-expensive benefits as a contractor or untenably-unaffordable benefits as an unemployed person is no choice at all--especially for people with health problems/children/debt. Ignoring the people being driven (I'mma say that the benefit to the most needy customers of Lyft is negligible compared to the costs/benefits to the drivers in this scenario--otherwise we should have a different discussion about whether or not rides-for-hire should be a public utility), I think saying "you got paid your safety net in your insultingly-low wages last week" is deliberately obtuse and fails to engage with the issue at hand.

> The choice between untenably-expensive benefits as a contractor or untenably-unaffordable benefits as an unemployed person is no choice at all--especially for people with health problems/children/debt.

It appears that lots of people choose to drive for Lyft knowing they won't get those benefits. Why ignore their choice? If they're choosing to do it and Lyft can't give them the same opportunity along with the benefits it's effectively saying they shouldn't have any opportunity for work until they have the perfect opportunity. I'm not convinced that it's better for someone to starve than to have the opportunity to drive for Lyft.

The people choosing to drive for Lyft do so over all other work opportunities. If there was something equally good that also provided health benefits, then Lyft wouldn't have any drivers as everyone would pick that better alternative. Given there's not a better alternative, why pick on Lyft? They're the most appealing opportunity for work for lots of people.

A lot of people choose to drive for Lyft because there aren't many other options to make money. When you have a choice between $0 and $Something, you're going to choose $Something. Companies know this and take advantage of this in order to underpay people who might not have other options. It gets even worse if you consider people who already have a job which can't support them or their family.

People can and do make bad choices, such as people who choose to forgo health insurance which then burden hospitals and tax payers in a way that affects everyone else.

The solution is to either force Lyft to play ball and not allow them to avoid things like minimum wage laws by calling their workers contractors, or to ensure that the government covers their healthcare.

> It appears that lots of people choose to drive for Lyft knowing they won't get those benefits. Why ignore their choice?

Because we live in a democracy that has some minimal protections for workers(not as much as we should). We have minimum wage laws and child labor laws and worker safety protections.

How could that be inhumane? The worker and the payer agree ahead of time how much is to be paid and what goods and services are delivered. Both parties have to agree, or else one will walk away. You say it's inhumane because one party didn't get something (healthcare) from the other? How is that fair to the other person? I'm asking if the deal was agreed to by consenting parties, nothing more.

The worker has a Sophie's choice to make: earn some money being exploited or starve.

Consent implies both parties are peers.

Since lyft operates at a loss by convincing morons to keep flushing money I'm not sure Lyft or Uber has any long term future of any variety.

Calling drivers morons is not helpful. Realistically, there is no way for me to make money between now and the 2 hours before bedtime. Lyft (and Uber) provide a way for me to work that extra few hours if I want to, which I previously couldn't.

In case it wasn't clear I meant investors.

> Forcing Lyft to hire employees instead of contractors won't mean there will be more workers with a safety-net; it means there won't be any Lyft.

So? If lift fails a better business will come along that can treat employees well. Or someone will make a successful community run app (which gives 95% of fares to employees taking only overhead) will come along to replace uber/lyft since it would actually be treating them as contractors unlike uber/lyft

“How much does he deserve”. Welcome to America.

Honestly. This market is not a problem in European country where you get free health care. Why would uber/lyft make an exception for the US? If they can get away with it of course they will.

> “How much does he deserve”. Welcome to America.

I'm assuming there's sarcasm in that statement. However...

> My father has been truck driver his entire life and for the last 20 years worked as a contractor, while driving his own truck and trailer, since it gives him more $$$ than average driver who works as employee.

One of the primary reasons one makes more as a contractor is because the company isn't paying for those safety nets (insurance, pension, etc). That extra money the contractor is making is supposed to be going towards those things. If said contractor is not using it to buy health insurance and contribute to retirement, then it's that contractor's fault.

We have the same stuff in France. You lose on benefits as a contractor. But you do not lose on healthcare. That’s a basic human right.

I wonder what happens when basic human rights can no longer be paid for with hypothetical future cash flows… future gillets jeunes to be mown down by domestic metadata drone strikes under emergency powers acts when they try to demand for their basic rights?

As a rider, I am going to pick the cheapest ride. If Lyft pays their drivers less, it's because I pay Lyft less. If society as a whole picks Lyft, then it's society as a whole paying Lyft drivers less. I view Lyft more as a market maker rather than a company. In that sense, I agree with you, the market isn't the problem. The people to blame are riders, who got fed up with expensive and bad service taxis, and wanted cheaper rides. Lyft (and Uber) delivered on that, but they are only reflecting the will of us as riders.

That’s why some stuff like health care should not be privatized. Because the market will always go against it.

That is absolutely not true. You're generalising too much. There are many people that are trying to democratise healthcare the private way.

Look at how it's doing

It's doing very well, just not in the USA (if you mean healthcare in general). The attempts I've been talking about are doing well as well.

> “How much does he deserve”. Welcome to America.

Sure, that’s a good way to hyperbolically sum up a country or society, but it is very hyperbolic, and one could construct hyperbolic summations of other countries or societies too. Like “everyone deserves everything, regardless of their effort or contribution or ability.”

The truth is probably somewhere in the middle.

It isn't free.

he can... buy insurance?

A driver in the U.S. is banking by owning his own truck and trailer. There is little reason someone working even a half a year can't afford the best insurance on the marketplace.

This entire issue is a product of US health care costs. No one would give a shit about the classification of workers, if it weren’t for the fact that health care is insanely expensive and brutal to manage without insurance.

The US needs to address this issue, and now. However, as someone currently working in the field, I’m starting to think that the size of the country, and the sclerotic, poorly incentivized bureaucracy that controls health, will make it impossible to address until there’s a true crisis.

This is really one of the bad problems with the gig economy in the USA. Even Switzerland, which requires private insurance, disallows group plans to detach insurance from employment, making labor markets more liquid and flexible (as well as preventing huge distortions in the individual healthcare market).

Your dad does have one social net: even 1099's must opt into SS and Medicare (paying both employer and employee shares, unfortunately), at least.

They can deduct the employer share though? Or is that just self-employment taxes?

SE tax is the employer share, and its a bit complicated. As a 1099, you are required to pay the full SE tax generally minus (a couple?) deductions. But then, you are allowed to deduct half of what you pay in SE tax from your income for regular income tax. The SE tax is also paid I believe only up to some income limit. Then, there's the Medicare tax on top of that, which is not income-limited.

> SE tax is the employer share, and its a bit complicated

SE is equivalent to both employee and employer share, which is why you get to deduct half of it, equivalent to the employer share (which is not included as taxable income for other workers, either.)

Basically they are self-employment taxes, which is just the employer side of payroll taxes.

Anyone else see these and think about how maybe there should be some other type of worker other than employee or contractor? Those are hard definitions, and creating laws to reflect this type of worker is incredibly difficult considering people and companies figure out loopholes, but really feels like there should be another category to go with this type of work that's going to become more and more common.

Another alternative would be to decouple health insurance and retirement plans from employment.

Are retirement plans coupled to employment?

Neither social security nor 401Ks are, in that you can often keep and almost always rollover (to a personal) 401K when departing.

Pensions were, but as I understand it, those basically don’t exist anymore.

You can't really contribute to a 401(k) plan unless your employer sponsors one. When you leave the job you can roll it over to an IRA. Some independent contractors can contribute to an IRA, but it's inferior because the annual contribution limit is only $6000, and the income limits are lower. And of course employer matching contributions aren't available to independent contractors.

Independent contractors can contribute up to $43k to a solo-401k.

Something like “A contractor who accepts tasks through electronic communications generated by an automated system, and where the automated system could reasonably collect sufficient data to know how much time is spent exclusively on that task by the contractor, shall be entitled to at least minimum wage and ... for the time spent on the task.”

We don’t want to remove the ability for a true contractor to work on spec, or for non-cash remuneration, when they can negotiate with a human counterparty. But if you’re being given orders by an inhuman system, you deserve at least some of the protections employees receive against inhumane employers.

Unfortunately, this wipes out e.g. U.S. based Mechanical Turkers, some of whom have health or other restrictions preventing them from getting minimum wage jobs. Haven’t figured out a solve for that yet. But hopefully the actual drafters of legislation would!

(Also, this really makes me want an IDE to crowdsource lawmaking, linting to make the legalese exact, with verified lawyers reviewing PRs. Give the crowd the same ability that lobbyists have to spoon-feed legislation to lawmakers.)

> But if you’re being given orders by an inhuman system, you deserve at least some of the protections employees receive against inhumane employers.

Why? If there were better options out there then Lyft wouldn't have any drivers. Lyft has over one million drivers, which means that for those people there weren't any better opportunities. Lyft isn't profitable even at that lower level without benefits or the extra protections you're arguing for, but still over a million people choose to drive for them. Why take away the best opportunity those people have? Why not put the blame on literally every other company out there, because they all failed these Lyft drivers, leaving Lyft as their best work opportunity.

Haven't I read this somewhere before? Oh, yes:

"Are there no prisons?"

"Plenty of prisons..."

"And the Union workhouses." demanded Scrooge. "Are they still in operation?"

"Both very busy, sir..."

"Those who are badly off must go there."

"Many can't go there; and many would rather die."

"If they would rather die," said Scrooge, "they had better do it, and decrease the surplus population."

Maybe employees with all of the costs and none of the benefits of being independent just shouldn't be a category?

Why is it a given that its going to be more common or shall I say allowed to become more common.

Crack would be more common if we didn't keep locking up dealers.

Don't be too quick to say "none of the benefits of being independent" though. I've talked to plenty of Lyft drivers who say the biggest benefit is being able to work any hours at any time they want. Want to sleep in and only drive in the afternoon? No problem doing that. Or being a student and having wildly different schedule depending on the day of the week and the week of the semester? Sure. And many know that they are taking a pay cut in exchange for this freedom.

Any alternative to employees is even more inhumane and enables explicit exploitation, as uber and lyft do (aka the gig economy). What would you suggest as a meaning for this third type of workin class?

How about we have universal health care like every other industrialized nation?

A universal health insurance may be unfair, non-american, going against a free market ideology and endorsing nanny state.

But it would relieve so many problems, from homelesness to our overly litigious society, that I'd vote for it with both hands.

So why do we feel that it is “Unamerican” to not let people die on the street because they can’t afford health insurance? I thought we were suppose to be a “great moral Christian nation”?

There is nothing about the American health care system that has anything to do with the free market.

Before the ACA, if you had any type of pre-existing condition, you could not buy health insurance at any price.

Very rarely religion shapes the moral, rather than just encloses and protects the existing state of things.

I guess the roots of this "American" morale is those times when you arrive to the New World, you disembark the ship, and nobody owes you anything. You don't owe anyone anything either. If you don't like it, don't board the ship.

The times have changed. The morale, as it often happens, lags behind.

There's a non-trivial chance there will only be two jobs: employee and robot. Waymo and Uber are definitely betting on this model.

Like... what?

Isn't this just typical legalese that IPO docs are required to say on caveat emptor? It's typically worst case.

This might be like warning labels on the side of ladders. Somebody somewhere did something stupid with a ladder, and then a warning label is added to every ladder to prevent a future lawsuit.

and of course, mentioning things like this then becomes "news", spawning articles like this:


That was a shitty response to someone dying in their vehicle.

Tesla's autopilot marketing is extremely poor.


Lyft can be profitable today if they wanted to. The only reason they aren't is because they are fueling growth by propping up the supply of drivers through driver signup bonuses.

Ride sharing is generally supply constrained (meaning there's plenty of demand but drivers are in limited supply). If they stopped paying driver bonuses to expand in new markets or maintain share of drivers in mature markets, then the number of drivers would likely start plateauing or declining (due to high turnover) -> prices would increase and/or rider wait times would increase -> rider demand would fall -> growth would stall.

In short, they're choosing growth over profitability because that's what investor want to see. As soon as they choose profitability (which they might have to after IPO), their growth will come to a halt and their share price will tank. Watch.

I took a look at some of Lyft's metrics [1,2,3], but would be interested in seeing a more nuanced breakdown of their expenditures. You mention driver signup bonuses are a major expense, and is "The only reason they aren't" profitable today. Is this a fact?

[1] https://craft.co/lyft/metrics

[2] https://dashboards.trefis.com/no-login-required/zrRBRShU

[3] https://www.forbes.com/sites/greatspeculations/2018/10/10/a-...

Wouldn't it be far more sustainable to just boost base rate with the money instead to reduce churn? It sounds like a perverse incentive of metrics to reward new drivers instead of total ones.

> Lyft can be profitable today if they wanted to. The only reason they aren't is because they are fueling growth by propping up the supply of drivers through driver signup bonuses.

Maybe, but subsidizing new drivers might be key to having enough drivers to satisfy rider demand. They're a commodity with very little stickiness, if Lyft has a wait people will use something else.

I think it's actually less labour supply constrained than most businesses, since it's a job almost anyone can do without training other than a driver's license. And there are no big discomfort factors compared to jobs like long haul trucking or working in a mine.

Self driving cars would change the economics and create profitability in the markets it’s a viable solution within.

All ride sharing companies have the same problem.

This always seemed obvious to me that this was the play - that the initial gig economy period was just a stop gap to gain market share (at a heavy loss) until self-driving tech became available.

That has proven to be a much slower process than they probably expected.

Human drivers are just mechanical turks to build market share while self-driving cars become commercially viable.

Human drivers are just mechanical turks to build market share while self-driving cars become commercially viable.

Don’t they have to exist before we worry about commercial viability? You’re not the only one talking like FSDV’s are just minutes away, when the truth is that when you cut through the hype and wishful thinking, they’re an indeterminate period of time away. The conversation around this subject reads like people in the 30’s planning for the dawn of the fusion age.

The technology is not there yet, we don’t know when it willl be or if the avenues being explored now will lead there. Anyone who tries to tell you otherwise is trying to sell you something, like shares in a fundamentally unprofitable endeavor. I get it, self-driving cars would be very cool, and maybe we’ll even live to see them. Maybe not. It’s still a crazy company that can only profit if nonexistent technology emerges quickly! On the other hand I have some shares in my new space elevator to sell...

Aren't a few of the big players already piloting consumer-accessible taxi programs?

IMO, the stuff which has already been demonstrated is a bit too creepily good for comfort, even if we're talking about limited Tesla autopilot.

Sure, but we’re still easily 5 years from “all traffic, all weather, all situations” car AI, which is necessary for fully autonomous vehicles.

They already have the cheapest solution for having a driver and a car go around town, so sending drivers with their “autonomous” cars in good conditions is an impressive step, but insufficient for full autonomy and not enough to fix their business problems — they need to be able to send the cars in real life situations with no driver.

So 5 years of technology and 5 years of regulation before widespread adoption is a long time for Uber to have to be spending investor money before they spend investor money on autonomous car fleets in every major city. (Or are they going to lease cars from other people? — it may be then that the cost of leasing vehicles from others never comes low enough.)

The better hope for their investors seems to be the rumor they’re profitable in large, established cities and their costs are expansions and turf wars.

Is it possible that all the uber-style transport in a single city could be self-driving in the next 10 years? What would you say the probability of this happening would be?

I'm curious as to if there's a brigade for saying this, as it seems to be in everywhere. Aren't self driving cars on the road right now? Can't I grab one in las vegas this very instant?


The technology is very much there and they are spot on that the gig economy was always meant to be temporary. Self driving cars are being used already and doing significantly better than human drivers.

Market share and data. I actually think the market share angle is far less important because the switching costs from the perspective of the rider are very low.

If we assume this is correct what does it mean for the company and it’s employees? They are going public which means there will be pressure to make a profit. How does it bode for their recruitment and in general well being of the company?

Also I cannot imagine Uber to be in any different situation.

Most of the affected people aren’t employees. Who cares about the company more than their workers?

It means Lyft and Uber are terminal and their insolvency is not about if but when. There are only so many $2 bills to sell for $1.

I never understood why anyone thought otherwise, unless you believed self-driving cars would be ready by now.

I'm not going to pretend to understand the intricacies of Lyft and Uber and their experiments with food delivery, carpooling, and other endeavors. But scaling up does not solve the problem of paying your contractors more than they're making you - in fact it only scales up the problem.

Granted, I've thoroughly enjoyed my cheap rides subsidized by VCs for years. But it's just not a viable business, and I have never heard a convincing argument to the contrary. I feel as though few VCs are looking to create value so much as they're looking to get in early and cash out before the house of cards falls over.

Even if self-driving cars were ready right now, why would Lyft or Uber have an advantage? In theory, their current competitive edge over taxi services comes from pushing externalities to drivers.

If they had to worry about owning and maintaining all their cars, suddenly they're in a new and very capital-intensive line of business. I'd expect at least one of the established rental car chains- which have physical infrastructure like motor pools, mechanics and relationships with local auto shops, and logistics experience with all of the above- to eat Uber's lunch!

Every way I look at it, work on self-driving technology by rideshare companies is 100% smoke and mirrors to drive investment, and not a serious business plan.

There was a great post about Avis (I think) who had an incubator to explore ideas about what they could do with their fleet of cars. I think if you looked at rental companies, they are actively thinking about the future.

My impression is that the rationale is that they monopolize the market first, and exploit it latter.

Of course, that depends on a large barrier to entry, and I can't see how the barrier to entry on that market could be large. But well, VCs clearly disagree with me.

Scale and consumer behavior would be their moat. See Amazon, Google and Facebook for examples of what they have in mind.

It is basically the Moviepass situation writ large, except fueled by a massive hype bubble around self driving cars that even VCs were eager to buy into.

Unless they raise prices and accept lower volume. A contraction of profit seems inevitable, but I don't expect insolvency, at least not for the whole field.

I'm fine with this if we get medicaid for all. This won't be an issue if all the 1099 workers did't have to take a 30% pay cut (or negotiate for 30% higher wages, I'm ignoring the tax issue of course) to be healthy.

As far as I can see they have a good market position, if they can hold off the courts long enough for driverless to happen then they win, it they fall the other side they lose

The epitome of how capitalism can and will cannibalize itself. As corporations move towards maximizing profits for shareholder value, the individuals upon whom they depend on for profits are squeezed out of the system. The more successful companies can produce profits, the less people can afford the very products and services being produced and the companies will have no customers.

I don't see how they can't be profitable with direct hires. Nothing stops them from having a 75% part time workforce. Have those amazing rated drivers as FTE with benefits.

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