HBS Case Analysis assignment PDF

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Josh Davids Professor Satish Nambisan Management Analysis 600 April 20th, 2017

HBSCas eAnal y s i sas s i g nme nt #1: Both companies Uber and Lyft “were forced to cut base rates to attract new riders, not only hurting their own revenues, but reducing drivers’ potential income.” This is one of the first downfalls of Fasten’s competitors that lead drivers wanting to drive for Fasten instead so they could earn the most money. Fasten offered cheaper rates than dynamic pricing techniques such as Surge pricing by Uber and Lyft’s Prime Time pricing during hours peak demand “Technically it’s not a supply-side solution. It’s a demand-side solution,” said Fasten COO Christoff. Fasten believed drivers would respond to the Surge by heading to areas of high demand, thus creating insufficient supply in other surrounding areas without Surges. This knowledge opens opportunities for Fasten to capitalize on this unmet supply of drivers in other ares by offering different pricing options such as the standard fixed rate that drivers pay to Fasten, thus putting more money in Fasten drivers’ pockets regardless of where a Surge might be. The percentage that driver’s lost to Uber increased from 20% to 25%

and even as high as 30% in an experimental test ran in the San Francisco and San Diego area. CFO Brent Callinicos attempted to justify these increases by saying it “helped sustain the company’s rapidly growing valuation”, which is a valid claim. Nonetheless, this creates another opportunity for Fasten to take advantage of this lowered driver profit with Uber drivers and show those drivers that they could be earning more per ride based on a fixed flat rate payed to Fasten by the driver. With Fasten, offering flexibility to drivers so that they can work when they want to conveniently was a bonus for drivers. The case states “You have to understand, drivers value flexibility to a point where the benefits don’t matter to them. They tap on, they tap off, literally, whenever they want.” Recruiting Uber and Lyft drivers to Fasten became a major opportunity for them. Drivers were looking to make as much as possible on the side, so many drivers drove for both Uber and Lyft while Fasten had the opportunity to offer lower company commissions attracting more Fasten drivers. Fasten offered more strait forward pricing than Uber and Lyft. This helped riders understand how much their ride would cost with an estimate before the ride, and accurate actual charges based on time and mileage as the rider is in transit. This is a key benefit that separated Fasten from Uber and Lyft. Fasten did not have to inform potential riders how ridesharing services worked because competitors such as Uber and Lyft had already paved the way and it became an easy market to enter with low marketing costs.

#2: Some technological advances in the rideshare industry made it difficult to keep up with services such as pooling options, the question if they should expand into new cities, and the treat of autonomous vehicle technology. Evdakov explains early in the case that “In Russia, it’s very easy to start a rideshare company” and “you don’t have to develop the software. There are several platforms which you just lease, pay them monthly or annually, and you can have it. You don’t have to develop the software yourself. You can use any brand and buy templates.” Uber Pool and Lyft Line offered cheaper prices by sharing rides with other passengers heading the same direction. The algorithms and technology behind these programs were difficult and expensive to develop making this another difficult avenue for Fasten to pursue. “It’s expensive and it’s almost impossible to actually hire somebody qualified. Those that are qualified from the U.S.— from Silicon Valley—expect a salary that’s higher than the three of us.”. This will surely posed a threat for Fasten in the International markets outside of Russia. As a counter to this increased need for technological advancement “Fasten had to invest heavily in software development (about $2.5 million by January 2016) to compete in the United States.” allowing Fasten to have “35 employees based in Boston,

4 in Austin, and 75 designers, app developers, and other staff in Russia supporting their strategy.” This proved to help maintain Fasten’s market share in the US by advancing their technological abilities. At the same time, Fasten has not made any moves into the autonomous vehicle technology field, which could hurt them down the line as the industry evolves. Uber’s Xchange Leasing which allowed drivers to lease vehicles from Uber between a partnership with a handful of automakers helped increase Uber driver loyalty. This hurt the amount of drivers that would consider driving for Fasten, since Fasten was following Uber into the market. Ultimately this is a negative that Fasten has not countered and they believe at the end of the day their fixed rate system of pricing will ultimately attract drivers to Fasten. It is unclear on how effective this strategy has been because Fasten did not run a similar program to Uber’s Xchange Leasing as a direct response. Uber and Lyft left the Austin, Texas market when regulatory measures put roadblocks in their business strategies. Even though Fasten was up and coming, they were able to maneuver through these new policies and saw profits as soon as 2016 even before the South By Southwest (SXSW) event that brought 80,000 visitors to the Austin area. Before SXSW with the “official rideshare provider” being Fasten, Fasten ran a promotional program to incentivize drivers to start driving. After SXSW 2017 in February, Fasten only grew profits higher as they had a fleet of drivers ready to handle SXSW rider demand.

Fasten drivers had slower arrival times to passengers due to their late entry into the market but they combatted this by handing out $2 bills with the message “YOUR RIDER DIDN’T LOSE THIS. You’re losing roughly $2 on every ride when you pay 20%. Earn more with Fasten. We take only $0.99 per fare. fasten.com” on each bill. This word of mouth campaign in which Fasten representatives would ride with competitors and hand out these bills effectively attracted competing drivers to Fasten with a clear and logical reasoning to switch, thus helping decrease wait times.

#3: Fasten has stayed strictly in the Austin Texas and Boston Massachusetts markets. This has limited their customer reach but at the same time, Fasten is able to operate with little to no competition in it’s current markets. Technologically wise, the Fasten mobile-app created many difficulties for riders trying to order a ride. Some people experienced extremely long wait times while others were unable to book rides altogether. This technological downfall will surely need to be dealt with quickly if they want to remain a player in the rideshare industry. Fasten should consider entering markets outside of Austin and Boston and must be promoting to potential drivers to why driving for Fasten makes

more sense than driving for other competitors. I have never heard of Fasten before, but after researching their success in current markets, I believe that they could move their current business model and strategy to new markets domestically. Fasten could also move their platform to other countries outside of the US and promote their way of doing business on a global scale. Although much of the world has already seen ridesharing services emerge, there are still many new opportunities for Fasten to explore. Fasten also has the opportunity to become the “official ridesharing partner” of other events, but with competitors such as Uber and Lyft operating in other cities, it may be difficult to secure new sponsorships.

References: http://www.bizjournals.com/austin/news/2017/02/14/with-uber-gone-asmallerridesharing-company-earns.html http://kxan.com/2017/03/12/rideshare-apps-in-austin-sputterfrustrating-customers-on-sxsws-first-saturday-night/...