Lyft subscription plan is the future of ride hailing

Starting today, US customers of the ride-sharing app Lyft, can sign up for an all-access subscription plan instead of paying for rides on a ride-by-ride basis. By the end of the week, everyone in the US will be eligible for the plan. The result should be increased usage of Lyft, putting pressure on bigger rival Uber.

Lyft’s All-Access plan costs $299 a month for up to 30 separate rides of $15 or less. So while this is not an ‘all you can eat’ plan. For a power user of ride share apps, it represents a discount of up to one-third for 30 rides a month.

If a ride is greater than $15, one would simply pay the difference. But even rides past the initial 30 in a month are discounted 5%. There is no rollover. Now, Lyft decided on this price point because it tested other plans. There was a cheaper plan that cost $199 upfront for 30 rides worth up to $15 per ride. It also tested another plan for $399 a month for 60 rides.

I like this move because it effectively locks customers into Lyft at Uber’s expense. It also encourages users to ride more. If you take 20 rides a month at a cost of $15 per ride, the plan is a wash financially but gives you the option of taking an extra 10 rides.

This is not a replacement for users who take short trips or for those who use the app infrequently. But I see this as a huge positive from a business planning perspective because subscription-based business models are more predictable and easier to plan against than transactional models that require individual payments per use. I think subscriptions are the future of ride-sharing.

If one thinks of it as a car-replacement service, Lyft could now work as an effective replacement for driving to work or as a replacement for a park and ride commute for many people. Moreover, if a Lyft customer decides to ride share, it will increase the feasible ride length for which such a subscription makes sense. And, given the lack of car payments, insurance, gas and maintenance, one could reasonably add an extra $100 or $200 in rides and it would still make sense financially.