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article imageHow Lyft turned carpooling into a business

By Business Insider     Aug 25, 2016 in Internet
In early August 2014, engineers at Lyft were putting the finishing touches on their new product.
The engineers were excited, everything seemed ready to go, and they launched the new product.
The product had been challenging to build for several reasons — the main one being that Lyft needed to keep it a secret, which made testing it difficult — but the company was confident it was ready to be released.
It was called Lyft Line, and it allowed multiple people to share rides. Basically, carpooling with strangers.
But they'd forgotten one major thing: it was almost time for the musical festival Outside Lands, which spelled disaster for Lyft's new carpooling feature.
While big events like concerts, festivals, and sporting events are big business for Lyft, a music festival like Outside Lands presented massive logistical issues. Outside Lands is held in Golden Gate Park, and it's challenging to get from the north side of the park to the south side. It would likely take about 40 minutes to travel just a few blocks, making this a terrible first experience for those using Lyft Line.
The team had to solve the issue, and quickly.
So engineers created a quick fix so Lyft wouldn't allow Line matches during the concert.
Now, Lyft uses that hack it designed in an emergency for situations like closed-off streets, bridges, or challenging geographies in its 14 Lyft Line cities.
People are willing to ride with strangers — so long as it's cheap
Lyft Line is celebrating its two-year anniversary this month. Since its inception in San Francisco, Lyft has expanded Line nationwide and has completed 135 million miles in rides over the past two years. While the service is available in far fewer cities than UberPool, one thing sets the service apart: Lyft invented it.
The idea began with an acquisition. A company called Rover was building a public transit app that provided users the best routes to their destination. Rover started thinking about the idea of shared transportation, which got Lyft's attention.
"We had a hypothesis that probably most people are headed in the same direction during commute hours," David Dryjanski, one of Rover's founders and now a product manager at Lyft, told Business Insider. "That was just a hunch. Then when we joined Lyft, we were able to validate that with all of Lyft’s data."
Lyft acquired Rover in April 2014 and the team started working to bring Lyft Line to fruition. The team was creating something from scratch, and that came with a new set of challenges.
Dryjanski and his team began building the algorithms that would match riders and worked to understand user behavior. But they needed enough people in the same area to request rides headed in the same direction, they needed scale, and they needed to keep the whole thing under wraps.
"When we launched Lyft Line, there hadn’t been a service like this before, so there was a big question of, are people willing to ride not only with a driver that’s a stranger, but with another stranger in the car?" Dryanski said.
It turned out that people were willing to ride with more than one stranger, so long as it was cheap.
"We definitely found that as we’ve been able to increase density and efficiency, and offer a more affordable ride, more and more people are willing to share a ride," Kristen Quinn, Lyft's general manager for emerging business, told Business Insider. "The price helps get you to try it."
That price is based on a lot of things, like what the ride would be if a user didn’t share it, prime time pricing, current demand, the likelihood of a match, and any promotions Lyft is running at the time. What users are most interested in, though, is that it's cheaper than a regular Lyft ride.
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'Copying is the best form of flattery'
One year after Lyft Line launched, a new player entered the market: UberPool.
Uber's carpooling competitor grew rapidly and is now in at least three times as many markets as Lyft Line. But that doesn't mean it's not keeping an eye on what Lyft is doing.
The companies are frequently engaged in a price war to entice riders, and offering subsidies to attract drivers. When Lyft Line is 75% off, for instance, it's 75% off for riders, but Lyft is absorbing the cost. A person familiar with Uber's business says that as Lyft lowers prices, Uber ramps up its incentives as well. Both companies are spending to beat the other, resulting in millions in losses for both Uber and Lyft each month.
But Lyft says more carpooling options is simply beneficial to the greater good.
"Some people say copying is the best form of flattery, so that’s really cool to set the industry in the right direction," Dryjanski said. " I think this shows this trend of Lyft trying to be the innovator and pushing the boundaries and maximizing efficiency in ride-sharing — creating a better, holistic experience — and those ideas are actually very powerful and people believe in them enough to copy them."
After Lyft Line's success, the company has dabbled in other carpooling products. Lyft launched Lyft Carpool, where regular drivers could earn up to $10 per ride for picking up riders along their morning commute. The service was being tested in San Francisco, but was suspended last week. Lyft says it suspended Lyft Carpool due to a lack of driver interest, but says the effort won't be its last. While a carpool feature will ultimately thrive, Lyft says, "the time is not right now."
In the present, the company's main goal is to get Lyft Line to have better, more efficient matching capabilities, and to be much cheaper.
"My goal is to get Lyft Line to be at a price point that is fully competitive with any other form of transportation out there, that it gets so affordable that anyone can use it and no one is priced out," Dryjanski said. "We just want to make transportation affordable to people."
This article was originally published on Business Insider. Copyright 2016.
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