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Hello,You help me with a paper a couple of weeks ago and I was wondering if you have time to help me with other paper. Bellow is the description.This project requires you to evaluate a company. Your response should be based primarily on the case Fasten: Challenging Uber and Lyft with a New Business Model (see hbsp). However, you also must conduct further research to consider recent developments at Fasten.Response FormatPoints are deducted for papers that do not conform exactly to this format.Five pages long (excluding tables, graphs, and references). Include page numbers.Standard one-inch margins on all four sides of the page.Double-spaced. Standard tab (i.e., about 8 characters) start-of-paragraph indentations.12-point Times New Roman font.Each item in bold in WA Components should have its own heading.Tables and graphs should be referenced in the paper but placed at the end of the document.You must cite your sources in the text (as you use them). Include a reference list at the end.I have attached the article, Fasten: Challenging Uber and Lyft with a New Business Model. I have also attached the component of writing and the instructions in PDFThanks for your help.
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For the exclusive use of A. Rodriguez, 2018.
9 -6 1 6 -0 6 2
REV: MARCH 12, 2018
FENG ZHU
ANGELA ACOCELLA
Fasten: Challenging Uber and Lyft with a New
Business Model
Kirill Evdakov sat with his management team in their Fasten headquarters at the WeWork
coworking office, a collaborative work space that housed hundreds of startups and small companies in
downtown Boston. They were reflecting on their company’s strategy and recent growth. Fasten, a
ridesharing company that provided the mobile platform to connect drivers in their own personal
vehicles with people looking for a fast, convenient ride around Boston with a single swipe on their
smartphones, started six months in September 2015, with $9.1 million in venture capital.
Evdakov, along with his cofounders, COO Vlad Christoff, CMO Roman Levitskiy, and Chairman
Evgeny Lvov, were pleased with the progress and growth of their services. The company’s business
model, in which drivers were charged a $0.99 flat fee for each ride they provided, compared to the
20%–30% commission other ridesharing companies charged their drivers.
At the same time, the recent rapid decline and exit of Sidecar, which had held the number-three
spot in the United States, highlighted the aggressive fight for market share in the rideshare sector.
Intense competition, cutthroat poaching practices, fast-paced experimentation with new pricing and
service offerings, and ongoing legal and regulatory battles marred the industry. Any entrant would
have a long and tough road ahead.
In fact, residents in Austin, Texas used legislation to push back and voted to require rideshare
companies to implement more stringent driver background checks. Uber and Lyft resisted and ceased
operations in the city. Fasten immediately entered to fill the void and within four months of operating
in its second city, became the first rideshare company to return a profit.
After a $10 million financing round in October 2016, Evdakov and his team had to decide how best
to grow. Should they follow Uber and Lyft and offer pooling services that would require more
advanced data analytics and matching capabilities? Should they expand more rapidly into other cities?
And how should Fasten prepare itself for the arrival of autonomous vehicle technology?
Professor Feng Zhu and Research Associate Angela Acocella prepared this case. It was reviewed and approved before publication by a company
designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed
solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or
ineffective management.
Copyright © 2016, 2017, 2018 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Arnaldo Rodriguez in MAN 5721 – WA 2 taught by Holmes, Florida State University from March 2018 to June 2018.
For the exclusive use of A. Rodriguez, 2018.
616-062
Fasten: Challenging Uber and Lyft with a New Business Model
History of the US Ridesharing Industry
The advent of modern mobile smartphone technology gave users access to infinite information and
services at their fingertips. Mobile app developers created platforms to connect users with content such
as news, games, mobile banking capabilities, and GPS location and directions. As a result, the mobile
ridesharing industry emerged. Anyone with a smartphone subscribed to the app could request a ride
from drivers within the network and would be provided with the name, contact information, and car
and license plate number of a driver who would arrive for pickup within minutes. At drop-off, the fare
was charged to the rider’s credit card stored on file.
The rider and driver then rated each other based on any number of subjective and personal criteria
such as promptness, friendliness, available amenities (many riders expected phone chargers or water
bottles to be provided during their ride), or the rider’s consideration for the driver’s personal property.
Each driver and passenger had an average rating—information that was available to each party at the
time of the ride request. Drivers could refuse requests from riders with low ratings, and likewise, riders
could cancel a ride that was accepted by a driver with a low score.
Before ridesharing apps, passengers’ road-based ride choices in the United States were limited to
traditional livery services. These chauffeured rides could include taxicabs (available either for
scheduled and dispatched pickup or hailed on the street), or black cars and limousines (serving
business or high-end clientele with luxury vehicles). Although some cab drivers accepted credit card
payment, typically taxis required cash payment because many drivers were unwilling to pay the
additional credit card processing fees. This was both inconvenient and confusing for passengers to
know what were acceptable methods of payment. Black car and limousine services could only carry
pre-arranged, contracted customers who often paid through corporate or private accounts.
By 2015, when Fasten’s cofounders were ramping up to launch in Boston, the U.S. ridesharing
industry comprised three major competitors: Uber, Lyft, and Sidecar. (See Appendix A and Exhibit 1
for brief history of rideshare companies’ entry and funding.)
Competition
Uber was first to offer ridesharing to the general public in June 2010 to connect customers in San
Francisco looking for a ride from professional black car services. Sidecar and Lyft entered the scene
two years later with a service that connected passengers with drivers in their personal vehicles looking
to make some extra money. In response to the growth of its lower-cost competitors, in 2012 Uber
presented a more affordable alternative to its Uber Black service: UberX, a service that connected users
with non-professional drivers in their own cars. However, the company intended to maintain its luxury
brand image and kept its black car service option by continuing to offer the Uber Black option to
customers. Uber’s driver network expanded rapidly after UberX was introduced, reaching 160,000
drivers at the beginning of 2015.
Fierce competition ensued, particularly between Uber and Lyft. Both companies sought to expand
into new cities and to grow within those they had already entered. Uber launched a “Shave the Stache”
campaign, urging Lyft customers to try Uber’s service instead. Uber unabashedly recruited drivers
from Lyft, a process they called “Operation Slog” (“Supplying Long-term Operations Growth”), by
having Uber representatives request Lyft rides on fake accounts and then encourage the drivers to
switch to Uber during the course of the ride’s conversation – a poaching technique that became a
common practice for many ridesharing companies. 1 As a result, many drivers began multi-homing
(running both Lyft and Uber applications simultaneously, accepting requests from riders on either app
as they came in). Both companies also reportedly hired contractors to sign up as riders and then request
2
This document is authorized for use only by Arnaldo Rodriguez in MAN 5721 – WA 2 taught by Holmes, Florida State University from March 2018 to June 2018.
For the exclusive use of A. Rodriguez, 2018.
Fasten: Challenging Uber and Lyft with a New Business Model
616-062
and cancel thousands of rides on the competitor’s app, dragging drivers away from real requests, only
to be subsequently dropped. Both companies were forced to cut base rates to attract new riders, not
only hurting their own revenues, but reducing drivers’ potential income (see Exhibit 2 for companies’
pricing breakdown in Boston).
In its efforts to recruit new drivers, Uber initiated a car leasing program in late 2013 and a revamped
version of the program in 2015. The program, Xchange Leasing, a partnership between Uber and car
companies General Motors, Toyota, Ford, Chrysler, and other automakers, allowed Uber to directly
lease cars to its UberX drivers and offered discounts on their monthly payments. Drivers could secure
loans with better interest rates than traditional leasing programs because Uber collected data on their
cash flow, which reduced their risk to lenders. Uber funded Xchange Leasing with its own capital. By
July 2015, 20,000 of Uber’s U.S. drivers had participated in the program and earned $200 million by
driving with Uber as a result. 2
Dynamic pricing Despite competitive pressure to lower fares to fight for ridership, both
companies introduced a pricing scheme that would drastically inflate prices at certain times. Uber’s
Surge pricing and Lyft’s Prime Time pricing went into effect during peak demand (i.e., rush hour,
inclement weather, special events, and weekend late nights). The companies claimed that during high
demand, in order to increase driver supply by enticing drivers to either come online or relocate to the
Surge or Prime Time areas, prices would jump anywhere from 1.5 to 7 times the normal Uber rate, or
1.25 to 2 times the Lyft rate, determined by complex and undisclosed algorithms. 3
Critics of these pricing schemes argued that not only were the price increases unnecessary and
unfair, but the practice did not, in fact, balance supply and demand, especially in everyday situations.
“Technically it’s not a supply-side solution. It’s a demand-side solution,” said Fasten COO Christoff.
He argued that drivers would respond to the Surge by heading to areas of high demand, thus creating
insufficient supply in other surrounding areas. Christoff continued:
Now all the drivers are trying to chase the Surge in a certain area. Then the Surge goes
away but they’ve exposed other areas, and Surge is now there. Because our competitors are
commission-based, Uber’s Surge and Lyft’s Prime Time create an incentive to optimize for
the platform’s revenues, not for marketplace balance. Can you think of any other examples
where a company is making even more because of their inability to provide good service? If
Surge is at three times (or 200% Prime Time), the companies are making three times as much.
Why is that? Incentivizing drivers with higher rates at peak time is fair game. But making a
killing in the process as the platform provider most definitely is not.
At the same time, both companies introduced another lower-cost alternative for their riders, which
more closely embodied a carpool ridesharing model. UberPool and Lyft Line gave users the option to
request a ride and be paired with another rider heading in the same direction. These rides could last
longer than a usual Uber or Lyft ride due to added pickups or drop-offs along the way, but because
passengers split the cost with the other riders in their car, the fare was often significantly cheaper.
Driver commission As the U.S. rideshare market developed, Uber and Lyft began to raise the
commission they charged their drivers to squeeze out higher profit margins. Uber raised the percentage
they charged new drivers from the base 20 percent commission at launch, to 25 percent in most major
cities by September 2015, and up to 30 percent for an experimental group of drivers in San Francisco
and San Diego. 4 Lyft and Sidecar followed suit, raising their charges for new drivers to 25 percent in
the ensuing months. 5 To justify these increases, Uber CFO Brent Callinicos claimed that it helped
sustain the company’s rapidly growing valuation, which had reached nearly $70 billion by spring of
2017. 6
3
This document is authorized for use only by Arnaldo Rodriguez in MAN 5721 – WA 2 taught by Holmes, Florida State University from March 2018 to June 2018.
For the exclusive use of A. Rodriguez, 2018.
616-062
Fasten: Challenging Uber and Lyft with a New Business Model
Uber claimed its full-time drivers earned roughly $19 per hour on average across the United States
before other driving-related expenses. The number varied across cities. For example, in New York City,
that number was reported by Uber at $30.35, suggesting Uber drivers in New York City took home
around $90,000 in income per year before these expenses and $75,000 after (or a net income of $25 per
hour). By comparison, cab drivers and chauffeurs in New York earned about $15 per hour on average. 7
Fasten
For Fasten’s cofounders, ridesharing had been a part of their culture for decades. In Russia, Lvov,
Evdakov, and Levitskiy’s home country, the ridesharing concept became well established as a result of
the economic downturn in 1991 after the fall of the Soviet Union. Fasten cofounder Lvov had jumped
at the opportunity to launch the first successful and consolidated transportation network company in
the world, Saturn, for 17 years in Russia before envisaging Fasten.
In 1998, Saturn introduced a new model into the Russian ridesharing market by implementing a
technology-focused, automated taxi-dispatching system that streamlined the taxi-ordering process.
Using statistical analysis and optimized processing power, the new system allowed operators to
rapidly estimate how quickly a taxi could arrive at a passenger’s location. By 2015, Saturn held 35% of
total rides completed in Moscow and the company’s market share reached 85% in some Russian cities. 8
“One of the biggest disruptions from Saturn,” Evdakov explained “was that we recognized that the
driver was doing most of the work and we were just providing the information. There was no
legitimate reason for us to charge a share of it. That changed the Russian market completely and made
Saturn very successful.” “Uber reported to have completed 140 million rides worldwide in 2014, but
Saturn completed 100 million in just one country,” he continued.
“The Russian market is much bigger right now than the U.S. But the U.S. market has much bigger
potential—people have more money and the population density is much higher, of course. It’s a huge
country with a population three times greater than Russia’s,” Evdakov argued (Exhibit 3).
Much of the initial legwork to foster the budding U.S. market and bring the ridesharing concept to
Americans had already been done. “Uber and Lyft help us a lot,” Christoff said. “A lot of people are
using ridesharing services, so we don’t need to convince some stranger to drive with a passenger. We
don’t need to educate people on how to use this kind of service, so it’s good for us.”
While some argued that a major barrier to entry into the United States was in obtaining market
share in an already saturated market, Fasten’s cofounders thought otherwise. “We have the knowledge
of the model that works in a developed market [Russia],” said Levitskiy. “Contrary to popular belief,
the U.S. market is in its infancy,” added Christoff.
Fasten’s Business Model and Vision
By September 2015, Fasten’s founders were ready to launch. Initially, to attract drivers, Fasten
offered drivers a guaranteed hourly payment, as long as they remained logged into the driver app.
Instead of charging drivers 20%–30% of the ride fare as its competitors did, Fasten would charge a flat
$0.99 from every ride and drivers would pocket the rest. Similar to Uber’s booking fee, Fasten also
charged riders a ride fee of $1.50 per ride. (See Exhibit 4 for comparison of Fasten versus competitors’
pricing.)
According to Fasten’s leadership team, charging drivers a flat fee rather than a percentage of the
ride’s fare not only supported the company’s vision of transparency and fairness, but also aligned
4
This document is authorized for use only by Arnaldo Rodriguez in MAN 5721 – WA 2 taught by Holmes, Florida State University from March 2018 to June 2018.
For the exclusive use of A. Rodriguez, 2018.
Fasten: Challenging Uber and Lyft with a New Business Model
616-062
incentives between drivers, riders, and Fasten’s bottom line by growing the market. Christoff
explained:
Our model is fundamentally different. Our drivers are our customers. Our riders are the
drivers’ customers. The drivers are the actual service providers who move riders from point
A to point B. We just connect the former with the latter. Riders want to pay less and ride
more. Drivers want to make more. The only way to reconcile as the middleman is to give
them both what they want. So, in the end, we can do both. We can lower rates for riders so
it’s cheaper, while our drivers make more than they would make with our competitors
because we’re taking less in the middle. And the more they drive, the more they make.
But we as a company want exactly the same. We all want more rides. Now our competitors
are not necessarily interested in that. They’re percentage based. Does it matter to them if it’s
one $100 ride or 10 rides at 10 bucks? It’s the same. And what we want is for this to become
more and more affordable for everybody. People ride more, drivers make more, and the
company, because it’s based on a flat fee per ride, makes more. There’s no real secret to it.
Drivers immediately saw the benefits of Fasten’s model and vision. Evdakov described the
company’s commitment:
Doing our best for drivers and riders to be fair and transparent is not only our founders’
passion, but it’s a fundamental requirement for any business in any industry. Any customer
would prefer to be charged less and to pay a flat fee instead of a percentage-based
commission, especially when there is no variable cost on the part of the platform that
warrants it. Drivers are not an exception.
The company did not engage in lavish marketing techniques to convince drivers. “We don’t spend
on marketing for drivers at all,” Evdakov explained. “We recruited the first hundred drivers, me,
Levitskiy, and Christoff, by commuting with the competitors and asking, ‘Do you want to make more?
Do you want to get treated better?’” During these rides, Evdakov, Levitskiy, and Christoff would pull
out an authentic $2 bill, on which they had taped a message that read: “Your rider didn’t lose this.
You’re losing roughly $2 on every ride when you pay 20%. Earn more with Fasten. We take only $0.99
per fare” (see Exhibit 5 for a picture of the $2 bill). “It’s the shortest sales pitch,” said Levitskiy. “It
takes drivers three-and-a-half seconds to go, ‘Wait, this makes sense. Sign me up right away.’” In fact,
90% of the drivers the founding team pitched in this way were immediately convinced and signed up
to drive for Fasten. Their methods were effective, and just one month into operation, it was clear Uber
had already taken notice. “Uber blocked our executives’ accounts. Finally,” Evdakov posted on his
Twitter page on October 2. 9
Expanding rider awareness was also done with very little investment with a marketing budget of
just $150,000. “We don’t spend a lot of money for rider marketing either,” said Christoff. “Most of our
success we have right now depends on word of mouth. It’s about drivers who are excited about our
model. For example, drivers who worked for Uber first pitch to their Uber riders because they
understand that if they have a lot of Fasten rides, they will make more money than with Uber.” The
company frequently offered promotions such as free rides on holidays or guarantees that any ride
under 10 minutes would not cost more than $5, all advertised on the company’s website and social
media pages. “We use our own advertising agency from Russia, Rutorika Digital Agency, where
Levitskiy, Lvov, and I are partners. It’s one of the top Russian digital design marketing comp …
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