Business Impact

Hailing a Different Ride in Austin

Following a bruising political battle, Uber and Lyft pulled out of Austin, Texas, making room for new forms of ride-sharing.

If you get off an airplane at Austin-Bergstrom Airport in Austin, Texas, and want to catch a ride to wherever it is you’re staying, you won’t get there via Uber or Lyft. The two ride-hailing titans don’t operate in the city—the largest market in the country without either company. Travelers exiting the terminal must instead keep their eyes peeled for ads promoting off-brand companies like Fasten, Fare, Wingz, GetMe, and RideAustin.

Uber and Lyft left Austin in May 2016 after waging the most expensive political battle the city had ever seen, spending $8.2 million to court votes in a special election on an ordinance called Proposition 1. That ordinance would have repealed regulations put in place by Austin’s city council, requiring the companies to follow rules that have long required taxi drivers to be fingerprinted as part of a criminal background check. Instead, it would have imposed rules created by a political action committee the two companies had formed. The proposition failed by a margin of more than 11 points, and having vowed that their presence in Austin would be unsustainable without it, Uber and Lyft both shut down operations within 36 hours.

Some 587,000 people voted in the Prop 1 election, 160,000 more than turned out for a similar special election in 2013, and the campaign was divisive in a city already struggling to reconcile diverging identities. The fastest-growing city in America, Austin has a burgeoning tech culture that has raised both the city’s international profile and its cost of living. Rent and property taxes are higher than they have ever been, feeding an ongoing tension between the politically liberal “Keep Austin Weird” culture and the tech-centered newcomers.

Most of Austin’s political establishment, including unions, neighborhood and environmental groups, and the Austin Chronicle, opposed Prop 1. Only two groups came out in favor of it: the Travis County Republican Party and the Real Estate Council of Austin.

In the days and weeks leading up to the election, opening a mailbox in Austin would reveal a handful of glossy mailers paid for by Uber and Lyft, warning residents of the consequences of voting against Prop 1 and touting the benefits of the two companies. The pair hired rising political organizers, inundated the airwaves with ads, and even hired Friday Night Lights star Taylor Kitsch—a local hero—to shoot an ad explaining the benefits of ride-sharing and to hang out on the University of Texas campus, posing for selfies and encouraging fans to vote for the initiative. 

Rather than creating a sense of inevitability around the campaign, the media blitz played into locals’ concerns that Austin was being bullied by out-of-towners who thought the rules of the city didn’t apply to them. “It’s possible to spend $8 million to piss off an entire city,” says Dean Rindy, a political consultant who worked to defeat Prop 1.

As soon as Uber and Lyft left, replacements popped up, eager to take advantage of the suddenly wide-open market. Former Uber and Lyft drivers launched an informal Facebook page called “Arcade City” where people looking for a ride could post their location and destination, so drivers in the area could bid on the right to drive them around.

For budding entrepreneurs looking to capitalize on the 10,000 drivers Uber and Lyft had just abandoned, it was an unprecedented chance. “We never thought we would have this big of an opportunity and we do not take it or you for granted,” Fare founder and CEO Michael Leto wrote in an e-mail sent to prospective drivers less than two weeks after the election.

RideAustin is the most innovative of the companies to pop up in Austin post-Uber. Founded as a nonprofit by two local tech leaders—Joe Liemandt, founder of software company Trilogy, and Andy Tryba, CEO of tech job placement company Crossover—RideAustin tapped the talents of Austin’s developers and designers, creating an explicitly local service never intended to grow into something that could challenge Uber and Lyft in cities around the globe. Announced two weeks after the Prop 1 vote, it began offering rides a month later. RideAustin’s nonprofit model was an attempt, executives say, to bridge the divide between Austin’s tech community and the residents who had repudiated Lyft and Uber at the polls, while also ensuring that a city with unmanageable traffic, insufficient public transportation, and a famous late-night bar scene would continue to have reliable ride-sharing.

Would you support a local competitor like RideAustin?

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“This was really sort of an olive branch to say, ‘Look, the tech community saw some of these open wounds, and we’re going to do something to try to heal that,’” explains W. Joe Deshotel, RideAustin’s director of community engagement. “You invest in RideAustin because you care about Austin, you live in Austin, and it’s important that we have something like this in our city.” Since its launch, RideAustin has raised more than $7 million in donations, mostly from members of Austin’s tech community. 

It’s a very different type of ride-hailing service. The company allows passengers to round up their fares to the nearest dollar, donating the extra to a local charity (Deshotel says that RideAustin has raised over $100,000 for charities so far), and users can opt in to surge pricing to get to the head of the queue and ensure that their drivers are properly compensated. Residents have embraced the startup, which gave its millionth ride in late February and currently averages nearly 60,000 rides a week. Growth has been accelerating: it took 31 days from the company’s June 15 launch for it to give its 10,000th ride but less than 100 to hit 100,000, and it hit a million in just under 250 days.

The $100,000 raised for local charities has certainly attracted plenty of media attention, and the company partners with major events like the Austin City Limits Music Festival to keep its profile high. It is quite transparent with its data as well.

The company also retains drivers’ loyalty by having a clear—and favorable—payment system. “With RideAustin, I get to keep all the money—whatever pops up on the screen,” says Lin Hughs, a driver who’s worked with RideAustin, Fasten, and Lyft and says that RideAustin is the most profitable service for drivers. “If it says $7, I get to keep all of that. That gets deposited into my account on Thursday,” Hughs says. “With Lyft, whatever you would see on the screen, they’d take almost 20 percent of it.”

RideAustin’s management team is small—just six people—and that low overhead is helping it reach a rare milestone in the ride-hailing business: unlike Uber, whose passengers only pay an estimated 41 percent of the cost of each ride, RideAustin is moving close to profitability. Excluding marketing and operation costs, the network has begun to break even on each ride. The plan is to cover operating costs with new revenue streams, including in-app advertising and partnerships with events that come through Austin.

The question for RideAustin is what happens when the big-name competition inevitably comes back—either because the companies have learned to live within Austin’s regulations or because the Texas legislature passes a law, already proposed, that would overturn the local rules.  

In the meantime, RideAustin is building trust at a time when Uber faces a growing list of challenges, ranging from bad management to user protests over sexual harassment allegations and the company’s behavior around the executive order on immigration. Since late January, a reported 200,000 Uber users have deleted their accounts with the company, some prompted by a campaign with the hashtag #DeleteUber.

“It’s not just what happened in Austin,” says RideAustin’s Deshotel. “I just wonder how long a business that relies heavily on high churn can just keep churning.”

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