Lyft: Ride Sharing Startup Zimride Hits the Gas Pedal in San Francisco

Using technology to attack structural inefficiencies in the market for automobile transportation.

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John Zimmer had been at Lehman Bros. for just over a year when he realized he didn’t like Wall Street. It was early 2008, and Zimmer, who graduated from Cornell University in 2006, was living in New York City’s East Village and working overtime as an analyst in Lehman’s commercial real estate division.

“I didn’t feel a connection to what I was doing,” says Zimmer, now 28. When he left Lehman in the summer of 2008 after completing the company’s two-year analyst program, a Wall Street colleague asked incredulously, “John, how the hell could you leave a sure-thing like Lehman to do a crazy carpool startup?”

Three months later, Lehman went bankrupt, most of the firm’s workers lost their jobs, and Wall Street plunged into the worst financial crisis in decades. Like so many young people before him, Zimmer lit out for the promised land, driving across the country to California and planting a flag in Palo Alto, at the epicenter of Silicon Valley.

Zimmer had already begun exploring the idea of a ride sharing startup when he saw a Facebook posting by Logan Green, with whom he shared a mutual friend. Green, based in Los Angeles, had been developing a car sharing project called Zimride. (Zimride’s name is inspired not by Zimmer’s name, but by an experience Green had visiting Zimbabwe and learning about its transportation systems.) Green is CEO, Zimmer is COO, and they share the title of co-founder.

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While still in the Lehman analyst program, Zimmer and Green received a $250,000 grant from fbFund, Facebook’s early-stage startup incubator. That enabled Zimmer to move to Palo Alto and begin working full-time on Zimride in the summer of 2008. Zimmer and Green lived, worked and slept out of a tiny Palo Alto office while boot-strapping their startup, he told me. “It was half the size of my apartment in Alphabet City,” he quipped. Zimride, which is now based in San Francisco, also raised an additional $50,000 during Dave McClure’s 2009 REV startup incubator program.

Since then, Zimride has raised a total of $7.5 million from several investors, including former PayPal executive Keith Rabois, Mayfield Fund, Floodgate, and K9 Ventures. (Rabois, who is now chief operating officer at Twitter co-founder Jack Dorsey’s mobile payments firm Square, is considered a member of the “PayPal Mafia,” along with Peter Thiel, Reid Hoffman, Elon Musk and several other Silicon Valley heavyweights.) Zimride now has 30 employees, and is growing. Another venture capital fund-raising round within the next six months is likely.

As Zimmer describes it, the vision for Zimride is to create a “social layer of efficiency on our current transportation infrastructure.” At Cornell, Zimmer graduated first in his class from the School of Hotel Administration, the premier hotel management school in the country. With that background, he noticed striking inefficiencies in the U.S. highway transportation system, specifically that 80% of car seats are empty, and the average car occupancy is just over one person per vehicle. In other words, we’ve got millions of people driving on our highways with seats to spare. Zimmer began thinking about the future of our nation’s transportation system and decided to focus on information infrastructure, as opposed to physical infrastructure.

Taking a page from Facebook’s playbook, Zimride initially focused on colleges and universities. Students are more likely to car-pool, because many lack vehicles, and also because they’re more likely to trust their classmates. Zimride now has a client roster of 150 colleges and companies that have replaced their traditional “ride-boards” with Zimride’s online platform. Students and employees at the participating institutions can use Zimride for everything from their daily commute to cross-country travel.

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Zimride is now filling 2000 seats from San Francisco to Los Angeles every month, with each “ride” costing about $35, Zimmer says. A driver can make $200 round-trip by selling three seats in their car. Zimride uses a rating system for riders to evaluate drivers, which means that good, safe drivers rise to the top of the pack, while bad drivers are marginalized and ultimately discarded. Zimride says it has facilitated over 200 million miles traveled to date.

The next phase in Zimride’s evolution is Lyft, the company’s taxi-cab alternative that launched out of beta (or test-phase) in San Francisco last Tuesday, August 28th. In a nutshell, Lyft is a mobile phone application — now available on Google’s Android mobile operating system, as well as Apple’s iPhone — that allows users to “order” a driver to their location in minutes. During the ride, passengers can play their own music and charge their mobile devices.

All drivers are subjected to DMV and criminal background checks, and are required to undergo in-person interviews, vehicle inspections and a two-hour training session. At the end of the trip, passengers pay the driver in the form of a (technically optional) donation in the amount of their choice. Because Lyft facilitates pre-arranged travel, not on the street taxi-hailing, and operates on a donation system, its drivers do not need a limo license.

Although payment isn’t guaranteed, Zimride says that the overwhelming majority of Lyft riders are willing to pay the company’s drivers at a satisfactory rate. Two months after launching in beta, Lyft now has more than 100 drivers operating in San Francisco. The service has been such a hit that 80% of users have become repeat customers, according to the company. (Lyft has apparently become popular with some San Francisco tech bloggers. For a first-hand account from a Lyft driver, please see my friend Cyrus Farivar’s Ars account of how he joined the service. He donated his earnings to the Electronic Frontier Foundation.)

I asked Zimmer whether his company had gotten any push-back from San Francisco officials complaining that Zimride might be undermining the city’s establishment taxi business. “We haven’t heard from them,” he told me. “I think they’re watching very closely to see if they can learn something.” Zimmer says the goal is to roll out Lyft in other cities around the country in the coming months. (New Yorkers may have to wait awhile because there are already so many convenient options to get around the Big Apple, he says. Plus, dealing with the New York’s Taxi and Limousine Commission entails more than driving around with a pink mustache on your hood.)

Zimride and its Lyft app are quintessential examples of Silicon Valley innovation: Using technology, in this case smartphones and social networking, the company is attacking structural inefficiencies in the existing market for automobile transportation. For a century, Americans have worshiped cars. It’s our birthright to be able to drive by ourselves down to the 7-11 to grab a hot dog and some nachos.

But there’s something slightly ludicrous about the notion that millions of people are driving around with empty seats while millions of others lack affordable auto transportation options. Zimride has competitors, most notably Sidecar, as well as Uber, which delivers more expensive, licensed limo drivers. Zimride, for its part, has attracted the attention of some of Silicon Valley’s brightest minds. If the company is successful, it could fundamentally disrupt the market for ride sharing and carpooling, not to mention taxi-cabs, saving consumers millions of dollars. And that’s something to get revved-up about.