“Fasten” Your Seatbelts – Gunning for Uber Late in the Game

New startup Fasten looks to disrupt Uber’s dominance in Boston by eliminating surge pricing and taking fixed $1 cuts from drivers

Fasten is the new, Russian-led ride sharing startup in Boston looking to compete head on with Uber and Lyft. With the latter two companies coming under increasing scrutiny and criticism, Fasten CEO Kirill Evdakov is looking to capitalize on public sentiment. They only take a $1.00 cut from each ride (instead of 20%) and have ended the much-scorned practice of surge pricing.

But is it too late for this new kid on the block? Uber’s $8 billion war chest and market dominance loom large. Moreover, Uber has no problem bleeding new competitors dry through targeted discounting and driver loyalty incentives. Fasten, on the other hand, only has $9 million in seed money from its founder.

Uber has built a massive community of riders and drivers that has benefited mainly from the indirect network effects of its two sided marketplace. Each additional user makes the service more valuable for drivers, motivating more to apply. Additional vehicles, in turn, benefit the entire userbase. Within the driver community, the story is similar. Although drivers compete with each other, each additional contractor benefits the user community, fueling user growth and earning the drivers more business overall (in general, although some locales may have too many drivers from time to time).

Switching Costs Are The Key

Fasten stands a chance against Uber because the app world is notoriously fickle, and at the moment it is easy for both drivers and riders to switch between services. Many drivers in Boston are now working for Uber, Lyft, and Fasten all at the same time. If the driver gets a call for Fasten, he or she will likely take it over the others because it means a better cut of the fare.

Uber has kept prices lower than the taxi industry partially due to its use of contractors instead of full-time employees. This move, however, leaves it vulnerable to double-dipping among its workers who are looking for the next best thing.

As for users, Uber has done surprisingly little in the way of loyalty initiatives outside of an Uber VIP program in a few select cities. Their main value proposition is consistently low prices and very quick access to drivers. However, this does result in very low switching costs for users, especially during times of high demand and surge pricing.

Defending Against Uber’s Inevitable Response

Fasten has chosen to launch in Boston and establish a critical mass before expanding to new markets, taking a similar approach to Uber in the early days. They have used guerilla marketing techniques such as riding in Uber vehicles and signing up the drivers for Fasten. I expect that Fasten will catch on and grow quickly within Boston, experiencing regional network effects and quickly coming to the attention of Uber.

Uber can try to crush Fasten in several ways if it becomes a serious threat. They could initiate a localized price war (similar to what has happened in many cities between Uber and Lyft) and lose money on every ride long enough to drive Fasten out of business. It is very difficult to survive a price war when your competitor has raised 1000x more money than you.

To combat this strategy, Fasten needs to raise a lot of money and expand to more cities as fast as possible. While Uber may find it palatable to lose money in one city for a while, they will not want to stay unprofitable for long across their most lucrative territories. Although Fasten seems content to bootstrap off founder money at the moment, it should quickly evolve its approach and establish a mini war chest of its own.

The other move Uber can take is to increase lock-in among users and drivers. It is unlikely to be able to sign exclusive contracts with drivers without severely increasing the Uber labor cost structure. However, there could be a lot more done with customer loyalty and rewards programs that would make it less likely for users to try out new offerings. I think this represents the biggest medium term threat to Fasten, which needs users to take a chance on the service.

Ultimately, while the odds are low that a small startup like Fasten will actually be able to unseat Uber from its throne in the ride sharing world, the correct variables are in place for it to make a legitimate attempt. It is time for Fasten to start putting an aggressive strategy in place for the inevitable moment when Uber responds.

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Old School Network Effects

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4 thoughts on ““Fasten” Your Seatbelts – Gunning for Uber Late in the Game

  1. Very interesting piece! I had actually never heard of Fasten until this, but now I am very intrigued. As a consumer, I really do hate Uber’s surge pricing–especially last winter during the snow months when it seemed like there was a permanent surge. I share your sentiment that Fasten will be able to compete with Uber in Boston because of user and driver multi-homing. When I need a ride and Uber is surging, I without hesitation switch to lift to see if it is cheaper. Boston is a great entry market because there are so many young university students. It is interesting to think what Uber will do when it decides it needs to crush Fasten. I doubt Uber will mess with its labor cost structure, especially since its independent contractor model has already come under significant fire. As you mentioned, Uber’s best first best is to initiate a price war and dry up Fasten. The rewards program is a good option because it will stop users from using Fasten in Boston but Uber everywhere else. I see this now as a race to see how much money Fasten can raise (and how quickly). If I were the CEO I’d continue guerrilla marketing and expand aggressively beyond Boston.

  2. I would argue that both the direct and indirect network effects for taxi platforms are local and that the scale benefits of Uber are fairly limited once a certain level of scale is reached (both locally and globally). This suggests that multiple platforms may compete within a city and make reasonable margins.

    If we believe this, the strategy of getting a few cities right before moving on to new markets may be better than an aggressive expansion into new cities that will not necessarily strengthen the existing network. After all, how do people in Boston benefit from Fasten getting a new driver in Toronto?

    1. Yeah, I totally agree – being weak in a lot of cities doesn’t make any sense. I was just saying that Fasten needs to get strong in multiple cities as quickly as it can in order to reduce Uber’s power, since Uber can cut prices in one or two cities fairly easily and drain Fasten’s resources.

      I was trying to figure out where direct network effects come into play here – I agree the network effects are local to a city, but it seems almost entirely indirect since the riders benefit from more drivers and vice versa.

  3. Great post! I ride Uber and/ or Lyft every day to campus and cringe when I see surge pricing (practically every morning)! This is the best news, I am about to download the app myself and will try to get a ride in the morning. I’m a bit concerned about the quality of the trip (safety & timeliness), but that could quickly change after I take my first trip with them. I chose my trip by costs, I feel no loyalty towards Uber or Lyft.

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