Uber and Lyft’s potential return to Austin may threaten new ridehailing startups

While the annual Austin gathering for startups, tech firms, and innovators traditionally focuses on the latest trends, one of the biggest storylines from this week’s South by Southwest festival was how hard it was to get a ride.

Tech media sounded off about service disruptions last Saturday night, when two local ridehailing companies went down for hours with tech issues , arguing that the Texas city—which set itself apart last year when Uber and Lyft decided to leave the market—hadn’t quite filled the gap left by the multibillion dollar transportation network companies (TNCs).

But the outcry over a temporary service disruptions obscures the bigger transportation story out of Austin: legislation introduced in the Texas State Legislature this week that might help bring back Uber and Lyft, creating a big challenge for the startups still in town and threatening an experiment in independent ridehailing.

Hearings in the state senate Tuesday debated the merits of a series of similar bills, all of which would establish statewide guidelines and overrule the city ordinance that requires ridehailing drivers to be fingerprinted (which is why Uber and Lyft left). Early reports from Texas Senate hearings suggest legislators seem to favor a more overarching approach.

“Our team is encouraged that the Texas Legislature is considering a statewide solution to ridesharing,” says an Uber spokesperson Travis Considine. “Texas is at the forefront of innovation, but lags behind more than 37 states that have already passed statewide ridesharing laws.”

According to Joe Deshotel, the communications manager with Ride Austin, a new nonprofit transportation network company (TNC) that formed after the big players left town, the new laws reveal a trend in Texas politics: pre-emption of Austin’s liberal laws by much more conservative state legislators. These bills are pushed by an army of lobbyists working for Uber and Lyft; Texans for Public Justice says the companies are now spending a combined $2.3 million on 40 lobbyists.

“There’s a little bit more steam this legislative session about going after cities,” he says. “State legislators love to beat Austin over the head.”

Ride Austin, one of the largest TNCs to emerge last year, has been growing at a significant pace, says Deshotel, despite the SXSW hiccup. Since launching nine months ago, the company has recruited more than 4,800 drivers (99 percent of which are fingerprinted, per the new Austin rules), provided more than 1.2 million rides, raised more than $100,000 for charity (riders can “round up fares” for donation), and now averages roughly 50,000 to 60,000 rides per week.

Ride Austin

Last week, during the opening of SXSW, the company ramped up to provide 100,000 rides, and by Saturday night at 7 p.m.—cold and rainy weather that night also increased demand—the system was overwhelmed. As explained in a company Facebook post, a database error led to the crash, which lasted five hours. Another competitor wth significant market share, Fasten, also experienced a temporary disruption that same night, adding to the confusion.

“The situation was ripe for Silicon Valley folks to come over and tell us that our city isn’t working because we don’t have Uber or Lyft,” Deshotel says. “It puts the elite nature of theses folks into context. They’re early adopters; the latest stats suggest that only 15 percent of Americans have taken an Uber or Lyft.”

The SXSW disruptions came at a particularly inopportune time, says Deshotel, when the city was under the spotlight and with legislation pending. Ride Austin doesn’t have the money to compete with Uber and Lyft on the lobbying front, so they’re attempting to educate lawmakers about the issues impacted by potential legislation. But they’ll get another chance to show they can handle prime time traffic this weekend, during the music portion of SXSW, when demand should be even stronger. For Ride Austin, he says, it’s “a rare chance to redeem yourself.”

Supporters of a statewide system of regulation have a flawed argument, says Deshotel. They’re basically removing the city’s right to regulate its transportation market, part of the pattern of pre-emption impacting Austin, and scores of other blue cities in red states. That stance is shared by Austin Mayor Steve Adler, who told the Austin Chronicle that, “Austin voters chose a system which fostered ride hailing competition and innovation and which delivered the safety choices they wanted. It’s working well and the people’s will should be respected.”

“We built Ride Austin from the ground up, with the city’s rules in place, as a nonprofit,” Deshotel says. “We have a mandate from the community, and want to build an asset to the community.”

April Mims, a Lyft representative, testified at the senate hearing, according to the Texas Tribune, arguing the patchwork approach created a headache for ridehailing companies.

"Some of these cities are within 30 miles of each other and no two policies are the same," she said. "This regulatory structure is not sustainable and is contrary to Lyft's mission to build an effective network across Texas."

While Ride Austin opposes the laws in their current form (they want data-sharing requirements), Deshotel believes they have a strong chance of passing. Uber and Lyft could return to the city as soon as June. But he feels the company has more than a fighting chance against the big players. While many, including Uber spokesperson Trever Theunissen, argue that the city currently has fewer drivers without Uber and Lyft in the market, the startups suggest otherwise (and unlike Uber, offer data to back up their claim). In a Medium post about SXSW, Andy Tryba, Ride Austin’s CEO, argues the market has actually grown:

Though Uber & Lyft are almost always secretive about their rideshare data — based on what Uber published in 2015 — we believe they did a combined 350k rides last SXSW (Uber at 250k and Lyft at 100k). RideAustin will do between 175–200k alone (2x Lyft) and we are ~40% share. This implies a total market of 437k to 500k.

“We believe that since we’ve taken the community’s input from the beginning, we have an advantage,” Deshotel says. “We think Uber and Lyft will take the tourist market. Local riders and drivers have been our focus from day one, we intend to maintain that market.”