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Why do ride sharing startups stick to particular cities?

Uber and Lyft are only available in select cities. What is the reason for not expanding to all cities as fast as possible? I understand why in the beginning it is important to get early adopters (e.g. target one or two cities), but after you make as much money as Uber or Lyft why not just hire the people to launch in as many countries and cities as possible?

Answer 857

There are a number of factors.

One is legal. What if a certain city or state has certain carpooling laws that may restrict it? California has laws which Lyft has decided don't apply to their service, but some people think they do. What happens if they launch in the entire state of California and then have legal problems causing them to have to pay fines in every city/county in the state of California? Obviously they've weighed the potential cost, and I'm assuming they're fairly confident they will be on the right side of the law when it comes down. But we'll see what happens as a result of their expansion to LA: WSJ Story Here

Lyft has also already faced problems in St Louis where the mustached cars were getting pulled over and cited for lack of Taxi licensing. So what happens when you expand somewhere without considering potential legal issues? Well, you get stuck paying legal fees of those who got cited (I believe they did this "voluntarily," but really, what other option does a business have other than ruining their reputation?).

Interestingly enough, Uber is hoping to open up their service to St Louis, but they're waiting on a company license with the city. Which turns this into not only a legal issue but a financial issue - not sure how much it costs, but I am sure it's not free. Story Here And even if it was free financially, someone had to take the time to jump through whatever bureaucratic hoops there are for getting one of those licenses.

There are other financial aspects as well besides licensing.

Drivers are paid. It comes out of the fair that is paid, so it may seem like there's no additional cost. Just accept customer payment and send half (or whatever fraction) to the driver, right? Well, what about taxes and is it going to give your accountant extra work? I am guessing they are contractors rather than direct employees, but having someone work for you certainly isn't free even if they're making you more money than you pay them (which honestly should be the goal for any employee you hire in any industry - it's just more obvious here how much they're making the company and what percentage their cut is).

The Lyft website also says they provide extended insurance coverage to their drivers - I'm sure that's not free.

Depending on the local laws they may also need to register their business (aside from other potential licensing) with whatever city/county/state/country they are expanding to.

So you're adding legal, financial, and accounting needs for each expansion.

This certainly isn't (and wasn't attempting to be) a complete list of the legal, financial, accounting, or other various issues that come up with an expansion to a new location. It's just a few examples to help get you thinking about what might be a less obvious side affect of growing too quickly into a new area without looking at every angle and weighing the potential cost vs potential benefit.

On top of that there is brand development. A press release saying, "We're now available EVERYWHERE!" would be great and I'm sure generate a general buzz about the company. But would that buzz be as effective as it could? Putting out a press release saying, "We're proudly expanding to cities X, Y, and Z this quarter," will get people excited and buzzing about the service being available specifically in those cities. Local newspapers and TV stations are more likely to cover it because it makes their town special. Paid advertising can be more focused as well. Now suddenly more people in the city know what that pink mustache is doing on front of the car. It becomes a more familiar part of the city and people are more aware of it. You only get one shot at launching a service like that in a city. How you do it could be the difference between becoming an established part of the culture and being an obscure data-point).

I think this is a really good question. I like it because it is a very specific example, but I think there is something here to learn for a lot of startups that aren't in the ride sharing niche. We get really excited about our business and it's easy to think "Hey, it's working great in my test market (or my beta tests even) - let's grow this thing as fast as we possibly can!" And sometimes that IS a good thing to do. But if done blindly it can cause some serious problems.

Answer 858

Uber is in at least 270+ cities and 45 countries - and in fact they are trying to grow as fast as it makes sense, see "How Uber Taxi Rolls Out City by City" - where Travis Kalanick, Founder & CEO at Uber, explains in a video interview:

Travis Kalanick, Founder & CEO at Uber

Video Transcript:

00:26 Kalanick: Our first city was San Francisco, June 2010, and we didn't launch another city until New York, that was May 2011. At this point we're now in nine cities around the world, two of them outside of the United States; Toronto and Paris. We're going to be hitting Europe pretty hard in the next several months, and Asia is going to really get going in the second part of this year.

00:48 Kalanick: Every city, every subsequent city that we go to we're getting better at rolling the city out and growing the city faster. And so a lot of the cities where there's constrained number of taxis, no liquid black car market, those are the cities where we launch and things explode from the start. We have other cities where there's tons of taxis, in some cases way too many and in those situations often the quality of service being delivered is really poor, so we go in there and explode as well. But there's all kinds of different cities in terms of regulatory, and in terms of what the industry looks like, an industry which we're disrupting in a substantial way.

02:27 Kalanick: Being local and speaking with local voice is important when you're doing transportation and means you know what's going on for the city.

Uber provides a market for service providers and consumers.

Market Profile:

For further research, see "A Regression Model of the Number of Taxicabs in US Cities "

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