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Fasten Challenging Uber and Lyft with a New Business Model Case Solution

Solution Id Length Case Author Case Publisher
2727 1802 Words (7 Pages) Feng Zhu, Angela Acocella Harvard Business School : 616062
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A ridesharing start-up named Fasten introduced itself in the ridesharing market in September 2015 by offering its unique and transparent model, which deliberately allows both riders and drivers to take advantage of in terms of charges and fares. With the offer of low fares and flat driver fees per ride, the company was able to enter and penetrate the market successfully. The biggest reason is that its competitors were operating on a commission-based pricing model, whereas fasten fixed the flat charges to drivers. 

The company's leadership felt confident that they were able to position themselves, understand consumers' perspectives and witness significant growth in the market even with the tough competition which already kicked out Sidecar from the market in 2016. However, the company also faced a few challenges due to limited budgets. The company needed to ensure that its core IT services were competent enough to survive in the market and that its word-of-mouth tactic would work to attract the network of drivers and riders.

Following questions are answered in this case study solution:

  1. What are the main elements of Fasten’s operations strategy? What differentiates Fasten from Uber and Lyft? 

  2. What are network effects (or network externality)? Please give some examples. 

  3. Given the network effects in this market and Uber’s and Lyft’s large installed bases in Boston, how did Fasten manage to enter and grow in this market?

  4. What is multi-homing? What factors encourage riders and drivers to multi-home? What strategies did Uber or Lyft use to discourage multi-homing?

  5. Disintermediation refers to the phenomena that users may take transactions off the platform to avoid the fee charged by the platform. Give some suggestions to deal with disintermediation in business.

Case Study Questions Answers

1. What are the main elements of Fasten's operations strategy? What differentiates Fasten from Uber and Lyft? 

Fasten, which introduced itself as a start-up in the Boston ridesharing market, entered the competition in September 2015. The company introduced a fresh and unique model to drivers and passengers and vowed to be transparent in the system. What makes this start-up unique and different from other competitors is that it kept the fare of rides low and charged a flat 0.99-dollar fee to drivers per ride. This is something new in the market as other competitors such as Uber and Lyft are operating the business by adopting a commission-based pricing model and charging 20 to 30% commission. This unique operational strategy of Fasten differentiated them from its competitors as the start-up challenged the ride-share giants by introducing a transparent model with low fares and flat fees. 

Moreover, another attractive element is guaranteed hourly payment, which ensures drivers that they get the payment if they would remain logged in to the app. The flat 0.99-dollar fee per ride gives drivers the leverage to keep the rest of the money in their pocket, and they can believe in the system's transparency and fairness. Also, the incentives are aligned among drivers, riders and the company's bottom line, making the services more attractive. Another attractive attribute of Fasten is its in-app rating system, which allows the company to monitor and regulate drivers' performance, unlike Lyft. This shows that the company can provide security to riders, and drivers are bound to follow the rules of transparency as the system restricts them from abusing the model's flexibility. This is something unique value proposition offered by Fasten, as with this service, the company could easily identify patterns even if the drivers are squeaky clean. Also, the very same app also weeds out bad riders means the services work both ways and ensure the rider and drivers are both respectable for the company.

2. What are network effects (or network externality)? Please give some examples. 

Network effects which are also known as network externality, is a concept that explains that with the help of increased participants, the value of goods/services can be improved. The phenomenon leads to more improvements in experiences due to the more participation of users, and it also encourages other consumers to look into and benefit from the network. Moreover, in this particular concept, product/service demand depends on the other consumers who buy or utilize the product/service. To put it in another way, we can say that others' decisions sway the consumer's buying pattern in purchasing products. Other than the case, a suitable example to explain this terminology is the internet. Earlier, internet users were limited to the mass level, and its value was not perceived highly; however, over time, users started to gain access. By doing so, more information and knowledge were produced by users. Also, the improvement in website development started attracting an audience through which more users got connected and exchanged information. This way, the user experiences grew, and traffic increased, which eventually made the internet an interesting platform, increasing its value.

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