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San Francisco, Birthplace of Ride-Hailing, Becomes the Center of Its Decline 

Written by Kevin Truong, Annie GausPublished Aug. 30, 2022 • 5:00am
A sign is posted on the exterior of the new Uber headquarters on March 29, 2021 in San Francisco, California. | Getty Images

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Starting next month, Uber customers in San Francisco will be able to use the app to hail old-style taxis, long the company’s blood enemies—a fitting coda, perhaps, for a company that exploded out of the city’s SoMa district a little more than a decade ago as the vanguard of a new tech boom, but has since proven mostly that too-good-to-be-true businesses are just that.

Born in 2009 from co-founder Travis Kalanick’s frustrations with getting a taxi in San Francisco, Uber has posted an astonishing $32 billion in losses in its short life, $1.1 billion of that just in the first half of this year. 

Travis Kalanick, former CEO of Uber, exemplified the early cocky, rule-breaking ethos of the startup. | Getty Images

And long gone are the days when, at the push of a button, an Uber would appear in two minutes and deliver you across SF for $6, thanks to tens of billions in venture capital dollars that subsidized the rides. Average charges for UberX rides in the Bay Area rose more than 38% from $15.54 to $21.49 between June 2019 and June 2022, according to market research firm YipitData. The number of Uber rides in the region, meanwhile, plunged 48% between June 2019 and June 2022. 

The same was true for Uber’s SF rideshare rival, Lyft, which actually invented the concept of personal vehicles as taxi cabs with pink-mustachioed cars where riders and drivers pretended to be friends; Lyft rides dropped by 48% in the Bay Area and average ride costs rose 39% from $15.12 to $21.06 between June 2019 and June 2022, according to YipitData.

The drop in ridership is of course partly due to the pandemic. But the rising prices, along with continued issues over how the companies treat their drivers, suggests that critics who have long doubted the ride-hailing business model were largely correct. The trajectory of the firms, and their impact on their hometown of San Francisco, also shows the outsize effects of the extraordinary boom in venture financing that marked the 2010s but is now in retreat.

In a recent sign of the rideshare pullback, Lyft said that as part of a multi-city cost-cutting initiative, it plans to dump more than half of the space at its San Francisco headquarters, which once held more than 2,000 employees. Uber instituted a hiring freeze in May in an effort to stem losses. 

“I just don’t see any way that Uber can pivot from a mass market, low fare strategy to a high fare market strategy,” wrote Hubert Horan, a transportation analyst and longtime rideshare critic, in an email. “They are trying to provide the same lousy service that the Yellow Cab companies offered 20 years ago…but charging 2-3X what Yellow Cab used to charge.”

Lyft declined to comment on criticisms of its business model, but said most industry analysts are optimistic about the future of the rideshare industry. Uber did not respond to requests for comment.

Passengers wait at rideshare area at San Francisco International Airport (SFO) in San Francisco, Calif. on August 18th, 2022. | Katie Rodriguez for The Standard

Once upon a time, Uber foresaw a future where autonomous vehicles would allow it to cut drivers out of the equation, opening the door to fat profits. But in 2020, Uber essentially waved the white flag on its autonomous strategy after investing $1 billion into development and selling its autonomous vehicle group to Aurora in exchange for a stake in the startup. 

Now, it’s self-driving vehicles from General Motors-owned Cruise, and from Alphabet’s Waymo, that swarm San Francisco’s streets (albeit mostly without passengers and with a “safety driver” at the wheel). 

And Uber and Lyft are left juggling a two-sided marketplace in which they must compete for both passengers and drivers. For drivers, that typically takes the form of bonuses or other incentives; for passengers, lower fares. But with investor pressure to cut quarterly losses, they are having trouble pleasing either.

Rides are more expensive and less convenient, making the apps less a daily utility and more a splurge for a night on the town, a trip to the airport or your company’s expense account. Kind of like a taxi. 

“I think I’m primarily motivated by cost at this point, basically whatever is cheaper. The drivers are all basically identical at this point,” said Dylan Crawford, a traveler from New Jersey who was waiting for a ride into San Francisco at SFO. 

Dominique Smith drives for Uber in Redwood City Calif., on Saturday, Aug. 27, 2022. | Benjamin Fanjoy for The Standard

Drivers are unhappy too. Dominique Smith, who has worked as a Bay Area rideshare driver since 2017, said that driving for Uber feels like running on “a hamster wheel” with no end in sight.

Smith said he used a portion of his Covid relief money to get a secured credit card that allowed him to take part in an Uber program that allows him to rent a vehicle to provide rides.

But the $300 in weekly payments for the vehicle—in addition to around $300 a week for gas— meant that for much of the pandemic he was forced to regularly work 60-70 hours a week just to make ends meet. A good day was working eight hours, but on average he was spending 10-12 hours driving. The app automatically shuts off after 12 hours. 

“You’re going to miss a lot of holidays, birthdays and events to basically keep your head above water,” Smith said. “It may seem like it’s a lot of money in hand, but that doesn’t account for gas, rental costs or the IRS.”

While Uber’s founders and early investors, notably VC firm Benchmark, made billions on the company, people who have invested in Uber since it went public haven’t fared well either: Its share price is down 30% since its May 2019 IPO, compared to a 59% increase in the Nasdaq composite index over the same period. Lyft shareholders have fared even worse. 

Last month, a group of Uber shareholders were able to win class status in a lawsuit against the company for allegedly hiding information from IPO investors about its rising costs, stagnating growth and ineffective business model.

Uber CEO Dara Khoslowshahi thinks he has some answers: In a memo to staff in May, he laid out a leaner path that he said would improve cash flow and reassure investors. The company’s strategy would be to focus on bringing customers in through its transportation or Uber Eats businesses, and selling those customers on $10 monthly Uber One memberships that offer discounts and perks. Uber also operates a freight service in the U.S. and Canada, but more than 80% of its revenue comes from rides and delivery. 

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But fresh challenges loom, too. Regulators, for one, are much more wary of a company that made a virtue of rule-breaking.

Eddie Wheeler, a former Uber driver, and Sarah Mason, a Lyft driver, protest outside Uber headquarters on Wednesday, May 8, 2019. | Getty Images

“It's going to get a lot harder for these types of companies who have come in assuming that the regulation will mold around them,” said George Maier, an economist at the London School of Economics who researches digital platforms. “The opposite is starting to happen now, whereby regulatory systems are closing in on them and it's starting to squeeze them out.”

He pointed to a 2021 ruling from the U.K. Supreme Court that required Uber to give drivers access to vacation pay, rest breaks and minimum wage while using the app. That’s being followed by a legislative effort by European Union officials to do the same across the continent.

A recent investigation into Uber's practices led by the International Consortium of Investigative Journalists showed that a pattern of rampant rule breaking and disregard for driver safety in its quest for global expansion has only added ammunition for regulators.

There is also a growing body of research on the negative impact of ridesharing on traffic gridlock, air pollution and transit ridership: In San Francisco, the rise of Uber and Lyft increased traffic congestion and steadily eroded the Municipal Transit Agency’s parking revenue, exacerbating an ongoing deficit. 

As part of a new Flywheel partnership in San Francisco, Uber’s customers will soon have the option of hailing one of Flywheel’s roughly 200 local taxi cabs. It fills Uber’s need for more drivers (without the supplemental insurance costs that come with its own driver network), and Flywheel’s need for a reliable customer base after years of limping along in the shadow of its much larger and better-capitalized rival. 

Taxi with logo for the Flywheel ride-hailing service, San Francisco, California, September 29, 2017. | Getty Images

A partnership with Uber was a tough pill to swallow among a segment of San Francisco cab drivers who were on the front lines of Uber’s destruction of their business model. 

Evelyn Engel, an executive board member of the San Francisco Taxi Workers Alliance, which opposed approval of the program, said there’s a palpable bitterness towards Uber even years after its winner-take-all business tactics nearly destroyed their livelihoods.

Engel wryly noted the irony in the way that, as the free-flowing spigot of venture capital ran out, Uber was forced to move closer to the industry it sought to destroy.

“In spite of all their efforts to undercut and destroy their competition, they haven’t entirely succeeded and in fact they are adopting more and more of the taxi industry’s methods,” Engel said. “It’s not a model that any taxi driver should be under, quite frankly it’s not a model that really anyone should be under.”

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Kevin Truong can be reached at [email protected]
Annie Gaus can be reached at [email protected]




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