Lyft's 'Nice Guy' approach to surge pricing: Happy Hour

March 18, 2014: 1:00 PM ET

The kinder, gentler Uber introduces anti-surge pricing


FORTUNE--Uber's riders love to complain about surge pricing. That's the dynamic pricing model that causes fees to spike when demand is high. Now Uber-competitor Lyft has a positive spin on the practice. On March 18, the car-sharing software company announced Happy Hour: When demand is low, prices will fall—offering customers discounts of up to 50%.

The name of the practice says everything about Lyft's corporate culture. Call it the kinder, gentler car-sharing software company. Uber's founders started the software business so they and their friends could have ready limousine service at the push of a button. By contrast, Lyft cofounders Logan Green and John Zimmer were obsessed with carpooling. Lyft emerged from their first startup, Zimride, a rideshare-organizing business that they sold to Enterprise last year.

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Green and Zimmer have designed the service intentionally to focus on the relationship established between drivers and passengers. Riders are invited to sit in the front seat rather than the back seat, and they exchange a fist bump to greet each other. Lyft drivers in the 24 United States cities in which the company currently operates are easily recognizable by the large pink mustaches attached to the grills of their Subarus, Toyotas, and the like. If these look goofy, well, that's the intention: "The thing people would be most worried about is, 'I'm getting in someone else's car,' but if you do something like a pink mustache, that diffuses the situation and humanizes the car," Zimmer told me during a recent visit to their downtown San Francisco offices.

Much like Airbnb and other companies that consider themselves to be part of the collaborative consumption movement, Lyft embraces stories in which the ride is a conduit to friendship. Green told me about an incident on Valentine's Day of 2013 in which a Lyft driver handed a Valentine to a passenger who was depressed and considering suicide. The passenger broke down in tears and so the driver ("A woman! We have a lot of female drivers") switched off the clock and talked with the passenger for an hour. "That's an extreme example of what happens every day," Green said.

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Can that kind of compassion scale? With $83 million in funding from Andreessen Horowitz, Founders Fund, and others, the car-sharing service is rolling out fast. And public documents suggest Lyft is in the process of raising another round of funding that may total as much as $150 million, and that would reportedly value the company at $700 million. If that seems a far cry less than Uber's reported $3.5 billion valuation, keep in mind that Uber has been operating since March 2009 whereas Lyft launched in the summer of 2012.

Happy Hour, according to a blog post published by the company, will insure that Lyft is the cheapest ride on offer in the cities where it operates. But that won't make the service immune to the dynamic surge pricing that Uber's riders decry. Lyft calls it Prime Time, a rosier moniker that alerts users to higher prices because of increased demand. Unlike with Uber, fees are capped at twice the ride's base price, and any extra fees go straight to the driver so Lyft does not derive financial gain from its busy times.

It's the "nice guy" move. Can the nice guy win?

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