Uber and Lyft have handily deflected any competition so far. Together, the two ride-hailing giants capture more than 98% of market spending, according to analytics company Second Measure.
Commissions for each ride comprise a significant revenue stream for both companies to the long-standing anguish of many drivers. Uber says it takes 25% of every ride, and while Lyft is more coy about its cut, the rates are estimated to be comparable. However, factors such as ride distance can cause the commission to balloon above 40%—a major reason why drivers for both companies organized a strike in May. When asked in 2015 why Uber was raising its commission rates, a then-executive reportedly said: “Because we can.”
One startup with backing from Silicon Valley accelerator Y Combinator wants to challenge the duopoly by eliminating the commission. Nomad Rides says its platform charges riders 20% less while drivers earn 20% more, paying Nomad a flat monthly subscription—currently, $25 per month. The startup launched its app at Indiana University Bloomington in February.
“The results were absolutely bananas,” cofounder and CEO Daniel Jones told investors during a two-minute pitch at Monday’s Y Combinator Demo Day. “In just 61 days, we completed over 5,700 rides. We had so much demand, we had over 9,400 ride requests.”
Jones and cofounder Michael McHugh, the company’s chief financial officer, have big ambitions. Sporting matching mint polos, they concluded the pitch to a roar of laughter after Jones asked if the audience was “interested in helping us kill Uber and Lyft.”
McHugh told Forbes that he and Jones see Nomad Rides as a software company rather than an Uber-esque ride-hailing app. The startup’s immediate goal, he said, is to prove through its pilot markets that it can be “a software-only company that profits off of subscriptions.”
“Our biggest problem right now is we have too much demand,” McHugh said. During Nomad’s trial run earlier this year, some drivers did not feel comfortable using the app because it did not offer insurance or possess a transportation network company license, he added. In fact, the startup paused its service after two months because it was operating illegally at the time. Since then, Nomad has obtained a license and is able to operate legally.
Unlike Uber and Lyft, which provide supplemental car insurance when drivers are on the apps, Nomad requires drivers to pay for their own insurance. Drivers can purchase a commercial insurance policy through Nomad at a cheaper price than they would get on their own. “We’re basically leveraging the amount of drivers we have to be able to get those drivers really affordable rates,” McHugh said. “Now, we can open [Nomad] up to a whole new driver pool.”
For drivers, Nomad’s appeal is like that of a gym membership, said Gartner senior director Mike Ramsey, who analyzes the automotive industry. An infrequent driver, like an infrequent gym-goer, has less incentive to subscribe. This poses a challenge for a company like Nomad that relies on the gig economy, which by nature attracts people who want flexibility. Nomad wants to build “tight-knit communities for gig workers who actually enjoy their jobs,” McHugh said. During the app’s trial run, Nomad placed drivers in a group chat and offered monthly events to build community. The startup focuses on safety and freedom for drivers by allowing them to choose the riders they want to take and even build up a client list.
Ride Austin—a nonprofit ride-hailing service that emerged amid a 2016 dispute that temporarily knocked Uber and Lyft out of Austin, Texas—charges a flat 99-cent-per-ride fee to the driver. CEO and cofounder Andy Tryba told Forbes he learned rider acquisition is a far greater challenge than driver acquisition. Nomad faces a long, expensive climb out of anonymity, Ramsey concurred.
“Uber and Lyft, they’ve got an unlimited budget to win any pricing battle, except for against each other,” Tryba said. “For anyone that’s trying to compete, you have to come up with a different, compelling rider acquisition plan.” Nomad prioritizes safety measures and hopes to grow like a social network, McHugh said. Starting in college towns is key, he added, because riders and drivers see the platform as a sort of user-empowering “political movement.”
McHugh said he’s flying back to Indiana ahead of Nomad’s relaunch. The startup resumes operations at Indiana University on Monday and will soon launch at other colleges in the Big Ten Conference, such as Purdue University and the University of Illinois Urbana-Champaign.
“Things are about to go nuclear as we return to a user base that has been begging us to come back,” Jones said.
Original Source: http://forbes.com