I love it when businesses, especially two-sided marketplaces, compete simply on the basis of a different business model. I’ve written about several examples:
I have also implemented business model changes at Ariba and ServiceChannel. So when an Uber driver told me about a new ride-share application with a different business model, I was intrigued.
Empower Takes on Uber and Lyft
Yes, you read that right, Empower is trying to displace Uber and Lyft–at least in DC, NYC, and Winston-Salem, so far! Empower believes Uber and Lyft are vulnerable. My interpretation of Empower’s logic is as follows:
- Uber and Lyft have “enshittified” their platform (sorry for the coarse language, but it’s very descriptive and not my concept).
- As a result, drivers are especially dissatisfied and receptive to a new business model.
- Riders are receptive to lower ride fees and to a platform they perceive treats drivers better.
- Getting both riders and drivers to multi-home, or switch platforms entirely, is doable because Uber and Lyft taught drivers and riders what rideshare is all about.
Enshittification of Platforms
The term and theory of “enshittification” of platforms was popularized by Cory Doctorow. Doctorow maintains many successful two-sided networks, or platforms, eventually have enough power to abuse marketplace participants and extract all of the value for themselves. As Doctorow says:
This is enshittification: Surpluses are first directed to users; then, once they’re locked in, surpluses go to suppliers; then once they’re locked in, the surplus is handed to shareholders and the platform becomes a useless pile of shit. From mobile app stores to Steam, from Facebook to Twitter, this is the enshittification lifecycle.
Doctorow makes a compelling case that this has happened at Amazon, Facebook, Twitter, Google Search, and TikTok among others. I’m not on TikTok, but his argument is pretty compelling for the other platforms. Each has a different story, but one could argue each has a much-diminished customer experience relative to when they started.
Enshittification of Ride Share?
Have Uber and Lyft become “enshittified”? Empower certainly thinks so, and as a heavy user of the two services, I see some evidence. The prices of the two services do seem to have increased dramatically. I’ve noticed, higher prices, more volatile prices, and “bait and switch” wait times. But as a rider, it’s not nearly as degraded an experience as I have on some of the other platforms.
Empower sees an opportunity, especially on the driver’s side of the platform. It’s hard to tell, but it does seem the Uber take rate of 25-30% has crept up. And certainly, there has been a lot of press about drivers suing Uber and Lyft. Empower’s thesis is that the market is ready for a more driver-friendly approach and that even riders want to see drivers treated more fairly. (I’m not sure about that. I think most riders just care about wait time, car cleanliness, and price!)
Empower’s Business Model
Empower describes its benefits to drivers as follows:
At Empower, we treat drivers like customers, because they are. Drivers set their own rates and get 100% of the fare. Empower takes ZERO commission. Drivers have access to their own dedicated local customer support team and are provided with the information and tools they need to take control of their financial future.
The pitch to riders is as follows:
Riders using Empower pay 20% less on average compared to Uber or Lyft. Riders also can request a driver they feel safe with by limiting ride requests to favorite or same gender drivers. Get $10+in free rides when you sign up!
So if drivers set their own rates and keep 100% of fares, how does Empower make money? Simple, Empower charges drivers a monthly subscription to be on the platform. The subscription in each geographic market increases as the number of riders in each market increases, but Empower promises drivers that its subscription rate will always remain substantially below the 20%-30 take rate of Uber/Lyft. (Empower will probably have to have tiers of subscriptions based on hours driven each month to achieve this.)
The bottom line is that Empower hopes that by giving drivers more freedom, a higher share of fares (100%-less subscription fees), and providing savings to riders (plus a psychological benefit of feeling like they are treating drivers better) it can move both riders and drivers to Empower.
Solving the Chicken and the Egg Problem
All of this sounds interesting and even plausible, but at the end of the day, there needs to be enough Empower drivers to make wait times and fares competitive and enough riders to satisfy drivers and keep them on the platform.
Empower thinks it can attract drivers first with its pitch and that drivers will attract riders. After all, many drivers multihome and drive for both Uber and Lyft. If they add Empower and like it, maybe they will pitch their riders on Empower. Empower believes Uber and Lyft did the heavy lifting to attract drivers and riders to ride share apps, so they can ride those rails and just get them to switch.
Next time I need a rideshare I’m going to give Empower a chance.