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.