A few tech companies have famously sailed to enormous wealth on the promise of industry-changing technology paying off after many years. But many more have failed.

It’s the Catch-22 of ride-hailing’s future: Uber and Lyft are banking on a driverless revolution — but they’re heavily dependent on human drivers to survive.

Lyft is the first of the two to sell stock to ordinary investors: it plans to list its shares on the stock market on Friday morning, raising $2 billion and valuing the company at $24 billion. Uber is expected to go public later this year.

Lyft says in a mandatory IPO filing that it wants to begin providing self-driving ride-hail trips on the app within five years. It wants a network of autonomous vehicles providing a majority of its trips within a decade. Five years after that, Lyft expects it will have “purpose-built” driverless vehicles on the road, not just zipping around town but taking passengers on long-haul journeys as well.

“We have set ambitious goals for Lyft to broadly deploy autonomous vehicle technology,” the company said.

Former Uber CEO Travis Kalanick called developing a self-driving car “basically existential” for Uber, given the push from companies such as Google to do so.

“The minute it was clear to us that our friends in Mountain View were going to be getting in the ride-sharing space, we needed to make sure there is an alternative [self-driving car],” Kalanick said, according to a Bloomberg story from 2016. “Because if there is not, we’re not going to have any business.”

But for the moment, both companies are heavily dependent on armies of drivers whose wages make up a significant chunk of the billions of dollars Uber and Lyft collectively lost last year. Uber and Lyft lose money on each ride they facilitate. Lyft will be under shareholder pressure to trim its losses, given that public funders are unlikely to give the company the same financial runway its early adopters provided.

“Some people characterize the driver business model as being nothing more than venture capitalists subsidizing people’s taxi rides around the world,” said Jason Schloetzer, a professor at Georgetown’s McDonough School of Business who specializes in artificial intelligence use cases. “And that kind of business model can only survive so long.”

Drivers represent more than just cost concerns for Uber and Lyft. As driver demonstrations in California illustrated this week, they are fighting back against the dwindling cut of the fare they get — as little as 60 cents a mile in Southern California, only two cents more than the IRS reimbursement rate. And court rulings or legislation could force the companies to consider drivers as employees rather than contractors, driving up their costs by requiring them to offer benefits.

Stacy Brown-Philpot, the CEO of TaskRabbit, another gig economy startup, framed the IPOs as an opportunity.

“It’s going to invite an expectation of transparency and an expectation of scrutiny which I actually think will be helpful and healthy in shaping how these companies will grow into the future,” she said at a technology forum hosted by The Washington Post in San Francisco this week. “I hope what then happens is that transparency allows for us to see: ‘Here’s what it takes to really build a sustainable business and also help people afford an income, a meaningful income.’”

Uber and Lyft did not respond to requests for comment on their IPOs or how they reconcile their driverless ambitions with the needs of their drivers today.

A few tech companies have famously sailed to enormous wealth on the promise of industry-changing technology paying off after many years. Amazon two decades ago was a nascent online bookseller that had yet to realize its vision of becoming a cloud-computing juggernaut that powers the Internet’s one-stop retail shop, ascending to become one of the world’s most valuable public companies. Google, and more recently, Facebook are among the companies that have far exceeded their expectations at launch.

But many more have stumbled. Companies like Fitbit, GoPro and Groupon trade at a fraction of what they were worth a few years ago. And Snap Inc. has yet to turn a profit after the company behind the popular Snapchat app went public in 2017.

“Lyft has created a narrative of an imagined future,” said University of Maryland strategy and entrepreneurship professor Brent Goldfarb, co-author of “Bubbles and Crashes: The Boom and Bust of Technological innovation.” The vision is of “a fleet of cars that drive themselves for less than what they’re currently paying the drivers. That’s what has to happen.”

Uber, Lyft, Waymo, Ford, General Motors and a host of other companies are pouring billions of dollars into developing driverless cars, and some companies, including Lyft, have rolled out pilot programs and driverless partnerships in places such as Silicon Valley, Phoenix, Las Vegas and Pittsburgh. But there have been setbacks, including the fatal pedestrian crash involving a self-driving Uber in Arizona, which halted the company’s driverless testing for nine months. Analysts have said widespread deployment of the technology remains years away at best.

Schloetzer, the Georgetown professor, sees a dichotomy between Lyft’s current and envisioned realities. One is expected to prop up the other, even though the models can eventually exist in unison. He says there will certainly be places, perhaps circuitous suburban neighborhoods, where self-driving routes aren’t yet mapped, and humans need to take over. In city downtowns and more traveled routes, however, self-driving is more likely to arrive sooner. Meanwhile, Uber and Lyft users are living in an investor-fueled limbo, he said.

Drivers fear they are already feeling the crunch of a company under pressure to prove its capability to investors.

“There’s always been an inherent tension between drivers and ride-hail companies,” said Harry Campbell, a driver who also operates The Rideshare Guy blog, which tracks the industry. “The companies have the ability to implement changes without any feedback from drivers,” which has led to driver protests such as the recent ones in Los Angeles over a sudden change to fares.

He said for many drivers it has grown more difficult to earn consistent wages as more riders and drivers flood the system. That’s why Lyft and Uber have spent billions on incentive programs to keep drivers on the road, such as cash bonuses for completing a certain number of rides per week or month. But investors’ tolerance for the outlays will be tested if Lyft continues to burn through cash as it has leading into its IPO. The company last year increased its losses to $911 million, erasing nearly half of its sales, even as those doubled to $2.2 billion. Lyft cautioned in its public filings that it may never achieve profitability.

Lyft and Uber have long grappled with retaining and recruiting drivers, particularly as the two ride-hailing firms have driven prices lower to attract more riders. Many drivers have bemoaned the lack of benefits such as health care coverage, contending they should be treated as employees, and point to expenses like auto insurance and gasoline as cutting into their earnings. Some say they feel powerless to combat sudden changes to fares or other fees the companies implement.

And while safety is a motivation, the promise of autonomous vehicles is primarily about cost savings. Driverless cars could slash the cost of a given ride, by eliminating the need to pay humans at the wheel, which could enable the companies to lower fares further.

It “is no secret that a fleet of autonomous vehicles has the potential to be incredibly lucrative for ride-hailing companies like Lyft and Uber, obviating the need to pay drivers,” read an analysis from EquityZen, an investment firm that has invested in Lyft.

Some drivers are already envisioning a future where they’re not driving. “I hope to be out of the game sooner or later — especially with the writing on the wall with autonomous cars coming,” said Rebecca Stack, a driver-organizer with Gig Workers United, the group that protested Lyft’s upcoming IPO outside a luxury San Francisco hotel this week. “But in the meantime I still have rent to pay. I have mouths to feed. I have to support myself. I live in the most expensive city in the United States.”


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