That’s a problem for ride-sharing companies. In an industry where new apps like Via, Juno, and Gett are coming online regularly, riders have myriad choices. Uber and Lyft can’t keep undercutting each other and everyone else to win riders forever; eventually, they’ll have to charge enough to retain drivers and also turn a profit, competing on the strength of their products and their brands. Both companies wish to be the one app we open every time we need to go anywhere. Lyft and Uber are attempting to compete for this alpha slot by improving their technology, boosting the quality of the service, and providing the most competitive prices.
But to become the one platform that people trust with their transportation needs, these companies will need to lock their riders in. That’s why Lyft’s new subscription service is so interesting.
Lyft has been testing versions of the plan since December, and last month it began rolling out the tests more broadly. “You’ll subscribe to a Lyft plan like you would subscribe to Netflix or a Spotify Premium plan,” president and cofounder John Zimmer explained when I visited the company’s San Francisco headquarters recently. He didn’t say how many people were enrolled in the program but pointed out that it was now being tested in every market.
The subscription program is still in the early stages, but it’s easy to see how Lyft would benefit. Indeed, many startups have adopted the subscription model to form a durable bond with sporadic users. “Spotify, Amazon, and others have employed ‘land grab’ strategies like this to change behavior and build new habits, as a means of forging loyalty in a moment of disruptive change,” says Robbie Kellman Baxter, consultant and author of The Membership Economy, a book that addresses subscription businesses.
Many startups, like Netflix and Spotify, have adopted the subscription model to form a durable bond with sporadic users.
Subscription business models are very popular among investors, and that could be important as Lyft prepares for an initial public offering. “Wall Street loves them,” says Daniel Ives, the head of technology research for GBH Insights. He calls this approach a “golden business model” because it locks in repeat customers over time. “This is something that, as the company goes from private to public, would be looked on very favorably,” he says.
In recent years, digital startups have launched subscriptions in nearly every industry. You can get monthly razor deliveries and weekly dinner supplies. For $10 a month, cinephiles can watch a movie every day with MoviePass. You can listen to music with Spotify, get free delivery (and just about everything else) with Amazon Prime, and take fitness classes with ClassPass.
But ride-sharing subscription businesses have challenges that other industries, like software, do not. “Up until recently, most of the subscription-oriented businesses were for digital offerings—where variable costs were negligible,” Kellman Baxter says. “But with rides, there is a real cost for each ride.” Drivers must be paid enough to make it worth their while, regardless of the cost to riders. “The biggest concern is going to be coming up with pricing that doesn’t bankrupt them but is still compelling,” she says.
Since 2016, Lyft and Uber have experimented with membership passes—testing similar, simple programs. A rider pays an up-front fee and then gets reduced-cost rides for a month. (Prices and services vary according to the individual market.) But two years in, these passes remain experimental and hard to search out. Riders discover they are eligible through the app, and they can only try it for one month.
While Uber has no immediate plans to move the program out of its testing phase, Lyft’s subscription program takes the concept much farther. Right now, riders have two options. They can subscribe to the “All-Access Plan” for $299 per month and get 30 rides of up to $15. If a ride costs more than $15, a rider will be charged the difference. Or, they can subscribe to the “Commute Plan” and pay $3.99 month in exchange for 45 Lyft rides between work and home, set at one personalized price.
One early tester, a Chicago rider named Rachel Morrison who is a competitive intelligence analyst for the company Arity, blogged about her experience. “The deal was no joke,” she wrote. She payed a $135 monthly subscription fee for 30 ride using Lyft Line, the carpooling service, that cost up to $10 each.
In Morrison’s case, at least, the subscription had the intended loyalty-generating side effects. Morrison blogged that after signing up, she buried her Uber app in a folder on her iPhone’s last screen and moved her Lyft app to a prominent place on the opening screen so she’d remember to check it first every time. She also reported that she’d begun to use the service more, and had opted for taking a Lyft Line over public transportation to commute to work more often.
A subscription business also sets Lyft up for a future where its riders use more forms of transportation, like renting bikes and scooters, and turn to the Lyft app to figure out when to use a car and when to take the bus. Zimmer plans to expand this even further in a bid to be a full replacement for car ownership. “If we have a rental car program now that has tens of thousands of vehicles for drivers, we could potentially offer that to passengers,” Zimmer told me.
A subscription business also sets Lyft up for a future where its riders use more forms of transportation, like renting bikes and scooters
Ride-share loyalty could help these other revenue streams thrive: If riders are opening the app nearly every day to call the Lyft Line, for example, they’re more likely to discover and experiment with these new services. But changing behavior is hard. When it comes to ride-sharing, most people are looking for the best price, and it will take a lot to train them to stop searching for something better.
I checked in with Morrison, the woman who’d blogged about her experience with Lyft’s membership, to see if she was still using the service. She loved it the first month, she told me. But rather like a gym membership, she didn’t use it as much the second month, and so she let her subscription lapse.
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This article was syndicated from wired.com