Eric Laub keeps two apps open as he waits for an Uber or Lyft rider in his 2013 Toyota Sienna outside bars in downtown Salt Lake City.
But sometimes when the apps ping him, it’s no rider at all. Both ride-hailing platforms are increasingly trying to woo Laub and other drivers with promotions or subsidies to get more of them on the road more of the time.
Pick up a certain number of rides each week in certain cities, and Uber will throw as much as $500 a driver’s way on top of the money he or she make in fares. Drivers in other cities are eligible for the “Precious Metal” program, which guarantees them surge pricing on every ride they accept.
For its part, Lyft has offered drivers and recruits $750 in certain cities when a new driver signs up with the app.
The dueling promotions are part of a war in the ride-hailing industry to grab market share, industry analysts say, and mark Uber’s latest effort to stomp out competitors by starving them of drivers. The more drivers a service attracts, the more it can lower passenger fares and increase demand, hopefully outpacing its rivals.
“These types of markets tend to become winner take all,” said Jerry Kim, a professor of management and global business at Rutgers University. “If they tip to one side, you don’t have to subsidize.”
Lyft, which launched a massive expansion campaign in January, is trying to hold on to drivers in critical markets and withstand Uber’s charm offensive, analysts say.
Uber slashed passenger fares nationwide in January and is subsidizing drivers apparently to make up for that lost revenue, according to drivers. Laub saw his earnings per mile drop from $1.25 before the rate cut to 80 cents afterward. And Uber takes a 20 percent commission every mile, he said.
But to gain Uber’s subsidies, drivers don’t have time to work for more than one service, said Harry Campbell, founder of the blog The Rideshare Guy. Drivers must maintain top-tier acceptance rates to qualify for the promotions.
“They’re basically requiring you to only work for Uber,” Campbell said.
That’s led some drivers to complain about the lost wages that come with working for a single app, something antithetical, drivers say, to why they entered the "sharing economy." Drivers say they make more money per ride with Lyft because the app allows riders to tip. But Uber controls too much market share nationwide — around 55 percent, according to industry estimates — for drivers to leave Uber altogether.
Uber’s rates without the subsidies are so low, some drivers say, that they can’t make a substantial profit without also driving for Lyft or working for other sharing economy services. Uber’s subsidies help, but not enough.
Uber said it cut rates to increase passenger demand and volume for drivers, which company higher-ups hoped would make drivers more money. That hasn’t been the case, drivers say.
“They cut the rates so low that it’s hard to justify driving, especially with dead miles,” or miles when a passenger is not in the vehicle, Laub said. "Dead miles" account for nearly half the time Uber drivers spend behind the wheel, according to internal Uber measurements.
“If they send you a ping 15 minutes away, you have to go get it, or it messes up your acceptance rate,” Laub said. “But the way they make up for it is with these incentives.”
Analysts say they see Uber boosting its incentives in markets where Lyft has expanded. Nearly all of Laub’s pick-ups used to be through Uber, he said. Now more than half are through Lyft, as the app has raised its profile in Salt Lake City. Recently, Laub said, he gets at least one Uber promotion offer every week.
Uber’s policies indicate a long-term game, Kim said. The company, which declined on-the-record interview requests, may use subsidies to win over a critical mass of drivers, he said, and would try to do so quickly to avoid potential legal issues.
Labor advocates have long argued that Uber drivers ought to be classified as employees rather than independent contractors. The more promotions Uber offers, Kim said, the more responsibility it appears to take for its drivers, making the platform look more like an employer than a vendor.
Uber’s promotions either have to win over enough drivers to squash competitors, or eventually the company may have to abandon them, Kim said, not only because of legal troubles, but also because the promotions program is expensive to keep up.
“Uber is looking to play the long game, but the crazy thing is that they’re doing it almost indefinitely,” Rideshare Guy's Campbell said.
And if the perk program continues, it actually works to the advantage of Lyft and other ride-hailing drivers, Kim and Campbell say. More subsidies give drivers greater leverage nationwide, and regions without aggressive promotions are ripe for expansion for Lyft and other platforms, especially those that specialize in particular kinds of service. Some platforms, for example, target a single geographic area to dominate a hyperlocal market. Others might cater to female riders uncomfortable getting into a vehicle with a male stranger.
Any way another platform can grab a percentage or two of market share takes the legs out from under Uber’s nationwide subsidy strategy, analysts say.
“You’re not going to be Uber,” Kim said. “You’re not going to be as big as Uber, and you’re not going to beat Uber. But you will be able to nip at Uber and take small chunks, and that could add up over time. If it becomes a war of equals ... that could mean anything.”