Will Ride Sharing Apps Survive the Self Driving Car?

Posted by: Lydia on 17/02/2021

Category: General

Person driving with maps app open

The rise of ride sharing apps has been one of the most amazing auto stories of the past decade. Uber, Lyft, and similar services have transformed the way passengers travel, the way the taxi industry operates, and even the way many professional drivers work each day. 

This is of course thanks to advances in technology such as the smartphone, but also the changing nature of how we live and work. But while ride sharing services have become incredibly popular over the last several years, is their end now in sight?

It’s predicted that by 2030, self-driving cars (SDCs) will be a common sight on our roads. SDC technology is actually available in some form in vehicles like Teslas and Mercedes-Benz. This is great news for consumers looking for a private vehicle, but for ride-share companies, the rise of the SDC will pose a fundamental challenge to their current business model. So let’s look now at how ride sharing services will fare in the decade of the SDC.

A Profitable Business Model

Ride sharing apps provide businesses like Uber and Lyft with the potential for substantial profit without major overhead costs. Ride sharing drivers provide their own car, and they also cover operating expenses like fuel, oil, and other maintenance. As a result of this, ride sharing services typically profit from a deal with drivers in which the latter effectively provide all of the equipment. In return, drivers get access to the huge customer base of a ride sharing app, a resource that would be impossible for them to build up on their own.

While this dynamic has been working well for ride sharing services, it also gives them less control over their workforce and equipment. If a driver stops driving for a ride sharing app, both the worker and their equipment are lost to the company. This is different from most taxi companies' business models, where cars are generally owned by the company. Even if a driver leaves, the equipment to continue operating will remain available to the business. 

The Future of Ride Sharing

In the future, the mass-adoption of the SDC could pose numerous problems for ride sharing apps. However, it’s important to note that the ride sharing industry is taking steps to get ahead of the curve. In fact, numerous ride sharing services have begun planning for a switch to the SDC. In December 2020, it was reported that Lyft expects driverless cars to be available in its fleet by 2023. 

At first glance, this would suggest the potential for SDCs to integrate well with ride sharing services. But in the same month, news emerged that Uber was selling off the SDC development arm of its business. 

If ride sharing apps had ongoing exclusive access to SDCs — or were able to get access to them many years before others could — then the potential to carve out a unique share of the market would be plausible. But if they seek to roll out SDCs at a time when the general public is able to purchase one, many people who would have once been ride sharing customers may eventually no longer need the service.

The Speed of Change

Adding to the challenges facing ride sharing services is the reality that — for all their popularity — they're having a hard time turning a profit. Both Uber and Lyft have had some unprofitable years, with Uber alone losing US$8.5 billion in 2019. Plus, with the adoption of SDCs into their fleets, they will ultimately be taking on new expenses like the cost of purchasing vehicles and fueling them.

Of course, it's important to note that most of the population isn't going to own SDCs as soon as they become widely available. In addition, there will always be city dwellers who don't own a car, or instances when people are away on business or holiday and require a ride sharing service from time to time.

However, it's reasonable to assume that the advent of SDCs will somewhat decrease the customer base of ride sharing apps. For example, many people currently use Uber or Lyft to get home safely after a night out instead of driving themselves, but in the future they would be able to use their SDC for that purpose.

What’s more, the ongoing effort by many governments in reforming the gig economy that ride sharing services rely on — which effectively forces ride sharing apps to classify drivers as employees instead of independent contractors — could also challenge the profitability of ride sharing services going forward, putting new pressure on the business model once again.

Driving Into the Future

SDCs are coming, and by the end of the decade, it's expected that they will be in everyday use around the world. Nonetheless, they won’t arrive overnight, so ride sharing apps have time to plan how they’ll tweak their business models in the meantime.

There’s no doubt that the removal of a human driver from the car will require ride sharing apps to take on new complexities in their business models. But it will also allow them to increase efficiencies, such as the potential for having a fleet of cars available 24/7 when many human drivers would otherwise be off the clock. 

Ultimately, the greatest problems for ride sharing apps won’t be whether they can adjust to SDCs, but how consumers will adjust to having SDCs available — and whether ride sharing apps can keep navigating the new laws many governments have put in place. While we still have a ways to go before it’s easy to pop by a local dealership and pick up an SCD, eventually that day will come — and when people have access to SDCs, the need for using a ride sharing app will diminish considerably. It’s up to ride sharing apps to find a route for their business that entices customers to keep using them. 

Do you think ride sharing apps will survive the self-driving car? Let us know in the comment below.

Image: Pixabay