Ride-sharing startups will have to follow rules to win Austin race | Crain's

Ride-sharing startups will have to follow rules to win Austin race

Aerial view of Light Post Freeway in Austin. Photo courtesy of Lars Plougmann/Flickr 

Since Uber and Lyft left Austin at the end of May, ride-sharing startups are racing to claim their stake in the market.  

The contenders include InstaRyde, RideAustin, Wingz, Fare, Get Me, Fasten, zTrip and Arcade City, which has made a name for itself by arguing that it does not have to follow the same city regulations that drove the big names out of Austin.

Like Uber and Lyft, each startup operates on the premise of connecting drivers with riders via a digital platform. Wingz specializes in airport car service, for example, while Get Me provides ride service and delivery service. All of these startups are complying with city ordinances that apply to transportation network companies – except Arcade City.  

"The existing transportation laws were written for Uber and Lyft much in the same way that back in the early days, before Uber and Lyft, the laws were written for taxis," said Arcade City founder and CEO Christopher David. "The laws are not oriented for more decentralized models like ours."

The question remains, however, whether Arcade City's platform is radically different enough from other ride services that it can escape the transportation network label and therefore, the city regulations enacted this spring that require transportation networks drivers to undergo fingerprint background checks.

Defining an old model as new  

David has big plans for his company. He wants to turn his startup – which came to Austin in May – into a global, billion-dollar, multi-purpose platform. "The end result is that we make Uber the largest waste of venture capital in history," David said.   

In the meantime, Arcade City operates as a high-traffic Facebook page where drivers can contract with riders without a middleman cutting into their profits.  

David plans to keep the same model for his app – scheduled to launch Sept. 1, according to Arcade City's website – and expand it so users can eventually make other transactions like booking rooms, which David said Facebook members have already started to do, That puts Arcade City in competition with Airbnb.  

Instead of taking a percent of each transaction made on the app, David said that Arcade City would most likely charge a $10-15 monthly fee for drivers to access the app, then let drivers set their own rates.  

Because Arcade City allows users to exchange multiple services and doesn't take a cut from each transaction made, David said his startup should not have to abide by city ordinances directed at transportation companies, such as the regulation that drivers for such companies submit to fingerprint background checks.

The Austin Transportation Department disagrees, however. On July 15, it tried to issue Arcade City a citation for operating a transportation service without valid operating authority, according to spokesperson Marissa Monroy. She said David was not present at his office to receive the citation, so it was not issued. Operating a transportation service without a city permit is a Class C misdemeanor, she said, and can carry a fine of up to $500.  

More for the drivers and riders  

Like Arcade City, Boston-based Fasten believes in letting drivers keep their profits. Rather than taking a fixed percentage from each ride, Fasten only deducts 99 cents from each completed ride to keep the company operational. Even when traffic increases, Fasten doesn't take a larger cut from its drivers' rides and it doesn't charge surge prices, as Uber and Lyft do.

"We really care about (our drivers), and we don't overcharge them," said Kirill Evdakov, CEO of Fasten. "We are competitive because we are doing the right thing by them."

Kirill would not disclose how many drivers he has in Austin. He only said he currently has "several thousand" drivers using his app. In May, he told the Boston Globe that more than 1,000 drivers signed up in Austin before Fasten's official launch date, June 1.   

Fasten offers riders an average ETA of less than five minutes, Evdakov said, and is already proving popular, with a 75 percent user retention rate. Even though Evdakov considers his startup to be a software technology company, not a transportation company, in both Austin and Boston, he complies with Austin ordinances.   

"It doesn't really matter what we think about ourselves," Evdakov said. "Regardless of what you are going to call it, it is just a way to get around, and city councils think of us a transportation company."

Marketplace for car and delivery service  

Get Me, an unexpected contender in this space, also offers more than ride-sharing services and, like Fasten, amicably complies with applicable city ordinances.  

"We follow every TNC ordinance," said Jonathan Laramy, chief experience officer of Get Me, which is based in Dallas and expanded to Austin in October 2015. "In fact, one of the strongest assets we have as a company are our relationships with the cities, the Austin Department of Transportation and the Houston Department of Transportation."  

Get Me's primary business is delivery service, and the company didn't become known for ride services until after Uber and Lyft left the track in Austin. Laramy said he thought the industry wasn’t bouncing back fast enough, leaving riders without transportation and drivers without work, so he overhauled his business focus.  

Now that the ride-sharing industry has gained traction again, Laramy said his company is going to resume its focus on delivery service while continue to give the users the option to use the app for ride-sharing, too.

"(Uber and Lyft) kind of took their soccer balls and went home, which is unfortunate because we never wanted them to," Laramy said. "They paved the way for this on-demand economy."

Like Uber and Lyft, Get Me takes a fixed percentage from each transaction that drivers make. The company takes 20 percent from each trip that is made and lets drivers keep 100 percent of their tips, Laramy said. He said Get Me has more than 30,000 customers in Austin.   

End game  

Across the country, numerous cities have or are considering the implementation of similar mandates to the ones that prompted Uber and Lyft to leave Austin including Atlanta, Los Angeles and Chicago.

If Uber and Lyft maintain their strong political stance, any city that requires drivers to undergo fingerprint checks could become the next Austin, with an open market for new entrants.  

"When (Uber and Lyft) leave, there are all these people using these services, so instead of having to go in and create the demand, that demand was already present," said Susan Shaheen, director of Innovative Mobility Research, a research group associated with The Transportation Sustainability Research Center at the University of California, Berkeley.

When a city doesn't issue enough taxi permits or a ride-sharing service doesn't exist, she said, that creates an opportunity for new startups to fill the unmet demand for car service. "These types of environments exist in a lot of locations and savvy business people figure out where those opportunities exist," Shaheen said.

Whether a new ride-sharing startup in Austin or elsewhere can become a national or even international player, however, depends whether it can generate enough venture capital to fuel the expansion, Shaheen said.  

Adrian Fortino, co-founder of the now defunct ride-sharing startup Sidecar, said he is skeptical that any new ride-sharing startup can gain enough venture capital to build a national stronghold.

And regardless of the opportunity that appears to exist in Austin – Fortino, who is now a partner at the Mercury Fund, which invests in the ride-sharing industry– said he would be wary of putting money into the newest game in town.  

"If I was going to invest into one of these startups, I would ask myself, 'What happens if Uber comes back?'" he said.

August 19, 2016 - 3:38pm