Paving the Way for Rideshare Cooperatives

Kelsey MacKinnon

Kelsey MacKinnon is a student at Harvard Law School and a member of the Labor and Employment Lab.

The rideshare industry is plagued with concerns over worker exploitation. Though rideshare companies promise drivers autonomy and flexibility, they more often deliver meager wages, a lack of employment benefits, and opaque decision-making processes that can result in sudden changes in pay rates or deactivation from platforms. The platform cooperativism movement calls for a simple solution to these challenges: cut out the Silicon Valley middlemen and give drivers direct ownership and control over the apps through which they sell their labor.

This idea has its merits — but can it work in the rideshare industry where even venture capital-backed behemoths like Uber and Lyft rarely turn a profit? If we’re convinced that rideshare cooperatives are the solution, we may need to turn to public interventions to help them survive the crushing forces of the market.

Platform Cooperativism

Platform cooperativism advocates for the formation of worker cooperatives as a means of building worker power in the gig economy. A worker co-op is a business that is owned and governed by its workers, typically with equitable distribution of profits among members and democratic decision-making according to a one member, one vote structure. These features empower workers to run the business in the way that best serves their interests, enabling them to prioritize things like pay and benefits — and often other socially-oriented aims, like environmental sustainability — over the short-term profit maximization that drives many investor-owned companies.

In the rideshare context, this model can enable drivers to democratically decide upon matters like pay, benefits, and customer complaint protocols, rather than accepting the terms handed to them by Uber or Lyft. Additionally, the profit-sharing component can help drivers capture a greater share of the earnings generated by their labor, rather than having those gains accrue to corporate executives and shareholders.

The idea of a driver-owned Uber is certainly appealing. But rideshare co-ops must bypass some significant roadblocks if they are to survive in the U.S.’s duopolistic rideshare market.

Roadblocks for Rideshare Cooperatives

Rideshare cooperatives face three major challenges in their formation and long-term viability: accessing capital, gaining market share, and achieving profitability. While these are challenges that any new business must overcome, they are particularly pressing for rideshare co-ops given their unique ownership structures and the anticompetitive nature of the U.S. rideshare industry.

First, the structures of rideshare co-ops make it difficult for them to access traditional sources of capital, impeding their ability to afford startup, operating, and growth costs. In rideshare co-ops, profits are distributed to drivers based on the amount of labor they contribute, and governance decisions are made according to a one driver, one vote principle. These features run into direct conflict with the expectations of investors, who typically require profit and voting rights in exchange for their money. Given that rideshare co-ops prioritize drivers’ interests over profit-maximization, they may have a hard time attracting outside investment even if they can do so without undermining their essential features of driver ownership and control. Instead, rideshare co-ops, like other worker co-ops, must turn primarily to alternative, more limited sources of capital, such as microloans, grants, crowdfunding donations, and member investments.

Even if rideshare co-ops can raise enough money to get off the ground, gaining market share in the U.S. rideshare industry — over which Uber and Lyft exert near total control — poses a challenge. Uber and Lyft have achieved their dominance in part by using their venture capital backing to offer artificially low fares to riders. Rideshare co-ops, with their more limited funding sources, might have trouble offering the competitive prices needed to attract riders. Moreover, the network effects at play in the rideshare industry make it difficult for any new players — even those structured as conventional for-profit businesses — to eat away at Uber and Lyft’s market share. While drivers may find the more labor-friendly offerings of rideshare co-ops attractive, they may nonetheless stick with the entrenched industry players in order to access their larger pools of riders.

Difficulty attaining market share is only one reason why rideshare co-ops might struggle to turn a profit. For the bulk of the time they have been in business, Uber and Lyft themselves have operated in the red. While rideshare co-ops can avoid Uber and Lyft’s significant lobbying expenses, they will presumably have higher labor costs if they live up to their missions of providing better pay and benefits to drivers. Unless rideshare co-ops can cut costs elsewhere, they will likely have a hard time breaking even, at least while offering the prices currently expected by consumers. Without a path to profitability, rideshare co-ops may not survive long enough to achieve their desired impacts for drivers.

Paving the Way Forward

The Drivers Cooperative, launched in NYC in May 2021, is confronting these challenges head-on. In its first year of operation, it has recruited more than 3,000 drivers, and its app, Co-op Ride, has been downloaded by over 30,000 riders. While it has yet to break even, profitability does not appear out of reach; under its current pricing and payout structures, it needs to capture only 0.2% of NYC’s rideshare market, or about 1,400 rides per day, to cross the threshold into profitability (currently, its drivers complete around 700 trips daily). If its recent crowdfunding campaign is any indication, many people hope to see it succeed in its mission of “putting drivers in the driver’s seat of the platform economy.”

The Drivers Cooperative’s experience can shed light on the sorts of interventions that might promote the viability of the rideshare co-op model. To get off the ground, the Drivers Cooperative has relied primarily on debt, grants, donations, and volunteer technical assistance. Cities could assist rideshare co-ops in starting up by investing in revolving loan funds or grant programs that make low- or no-cost financing available to both worker co-ops and the technical assistance organizations that support them.

States might also consider following California’s lead and amending their securities laws to better facilitate outside investment in worker co-ops. California’s Worker Cooperative Act enables worker co-ops to accept outside investment and turn over only minimal voting rights, such as for major decisions like whether to merge with another cooperative, and caps returns to outside investors at 15% of profits. This approach gives rideshare co-ops the option of trading off limited ownership and control in exchange for increased capital accessibility.  

The Drivers Cooperative also benefits from the fact that NYC has set minimum pay rates for rideshare drivers. Other cities might consider adopting similar minimums, which at least mitigate Uber and Lyft’s ability to slash drivers’ pay in order to undercut rideshare co-ops on price. Additionally, partnerships with the city and the Metropolitan Transportation Authority help provide the Drivers Cooperative with a steady source of business. Other cities that have partnered with Uber or Lyft to fill in gaps in their public transportation services may instead look to rideshare co-ops to fulfill these needs.

While it’s unlikely that rideshare co-ops will ever fully displace Uber and Lyft, the goal doesn’t have to be putting these giants out of business. If rideshare co-ops can amass a dedicated pool of consumers at their breakeven points, their value can be measured in terms of each driver whose labor conditions they have improved.

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