How ridesharing is not like Net Neutrality
Start Your Engines
This is a story from the near future. It begins with three companies:
- A ridesharing service called StreetFleet
- A shopping center known as the Plaza
- A Ma-’n-Pop shop called Ma-n’-Pop’s
StreetFleet has been operating in town for a few years now, and they’re killing it. They deliver an exceptional experience for drivers and riders alike, and it’s showing in their bottom line. They’ve captured a considerable share of the market, but as a result, growth is starting to slow.
Off the Line
Under intense pressure to maintain their rocket-worthy trajectory, they’re scrambling to find additional revenue streams. Sifting through usage data, they notice that many customers use their service for shopping trips. Then comes an epiphany:
We don’t just bring value to our drivers and our riders by taking them from place to place. We also bring value by bringing customers to places of business.
And like that, they have the Plaza on the phone.
StreetFleet: Let’s make a deal. If you join our Premium Destinations club, we’ll cut fares to the Plaza by 40% anywhere in city limits. It’ll be the default location for people looking to move on a budget.
A new revenue stream is born. Pretty soon, people are flocking to the Plaza in unprecedented numbers, taking two or three trips a week where they used to take one.
Meanwhile, at Ma-n’-Pop’s, business is slowing. Despite being closer than the mall to the main residential center of town, it seems that fewer regulars are making it out to their store. As they investigate the trend, they learn about the fare discount deal with Plaza. The reach out to StreetFleet and determine that—thankfully,—the deal with Plaza is not exclusive. So, they pour a good chunk of their marketing budget into a Premium Destinations deal. The best deals are beyond reach for their one-store budget, but they manage to snag a 15% fare discount, which brings a few more faces around each week.
Meanwhile, StreetFleet is just warming up. They approach Plaza again with an interesting proposition:
StreetFleet: We’re rolling out a premium customer experience called Gold Star. Using our proprietary AI, we expect that in 6 months we’ll be able to re-route standard rides in our network to make way for Gold Star members to complete their trip 20% faster on average.
Plaza: That’s quite impressive. But why are you telling us?
StreetFleet: AI ain’t cheap, and we want to invite you to invest. As a Gold Star partner, all rides pointing to Plaza will take advantage of our privileged routing service. Budget customers get to whiz by their friends and get a taste of the premium feel, which they’ll associate with visiting Plaza.
Plaza: We’re in.
Ma-’n-Pop’s doesn’t receive a similar invitation. Inexplicably, growth slows and then stalls for them. Eventually, they cut their losses and shutter the store.
The Final Lap
The team at StreetFleet is also in trouble. While they’ve managed to develop two new revenue streams, growth is already slowing again, and their shareholders are not happy. With a dash of desperate ingenuity, they reach out to national apparel brand Athena:
StreetFleet: We’d like to make your clothing line a social destination that lets people know they’ve arrived. Literally. As our merchandise partner, we can offer prospective customers unlimited travel to any of your official retail partners for only $5/month. In fact, if they aim for a more costly destination near one of your partner stores, we’ll offer them this package to save them time and money. These places will become social hubs, and the Athena brand will be at the center of it all.
Athena: Interesting. Let’s try it.
“Objection!” you cry, “this situation is not all like net neutrality on the internet.”
You’re quite correct. Consider the evidence:
- Consumers who don’t like what StreetFleet is doing have many alternatives options: taxis, personal cars, public transit, walking, biking. In contrast, nearly half of Americans have access to just one broadband internet service provider, whether they like it or not.
- Transit is just one of many strategies for a business to increase traffic to their stores—they could also invest in print or digital advertising, loyalty programs, direct mail, etc. In contrast, a SaaS company literally cannot provide a given level of service without a commensurate level of internet connectivity.
- Concerned citizens could work with regulatory agencies to ban StreetFleet from doing weird things like re-routing plebes so their premium customers can zip by. Because StreetFleet doesn’t spend millions of dollars lobbying the government and the head of the agency isn’t a former StreetFleet attorney.
So what? Big deal.
Why bother likening the internet to a ridesharing service? Aren’t Uber and Lyft disrupting the taxi industry? So what if disruptions change the landscape? It’s a free market; may the most valuable approach prevail.
This argument has a lot of merit, but I have to ask—most valuable for whom?
In our cautionary tale, StreetFleet has long since ceased to improve their value proposition for riders. Instead, they’ve commoditized them to provide value for other large incumbent corporations. And the pattern spreads like a disease, as big incumbents gain a new means of barring competitors from entering the market. Why develop competing value for your customers when you can simply pay to divert their attention away from the competition?
Most internet service providers operate in a very low-competition environment, and they’re free to act just like StreetFleet—to lure customers with the promise of cheap connectivity, then sell them to the highest bidder. They are free to make the Internet experience of millions a function of side-deals with third parties.
If this thought-experiment leaves you feeling uncomfortable, I encourage you to do something about it. Reach out to your representatives and let them know where you stand on net neutrality. It’s not a trivial matter, and neither is your position.
Special thanks to Jeff Whitlock, Justin McMurdie, Rep. John Curtis (R-UT), and Sean Vitka for a frank and substantive discussion this week that got the juices flowing.
And please give this a clap or share if you’re so inclined. Thanks!