In this conversation, the speaker introduces his talk “Search Pricing 0 to 1,” aimed at helping startup and marketplace founders understand how to design pricing engines. He frames marketplace pricing as a tool to maintain liquidity—the steady‑state balance between supply (e.g., Lyft drivers) and demand (riders). When an external event creates a demand spike (concert, sports game), the marketplace can react in real time with surge pricing. The core purpose of surge is not to extract extra revenue but to restore equilibrium: higher fares discourage non‑urgent riders, while higher driver payouts attract more supply. By simultaneously nudging demand down and supply up, the market returns to a steady state. The speaker emphasizes that the ultimate goal of surge is to get out of surge, not to stay in it, and notes that these dynamics apply across platforms such as Lyft and Shipt.
Chapters
you know, you did mention as far as, you know, how you can use pricing to kind of balance liquidity. So could you maybe— could we go a little bit deeper on that and you could share an example?
I think there is a quote— there is a talk that I have given in the past. It's called Search Pricing 0 to 1. And the idea of the talk, the gist of the talk is how would you build a search pricing engine? You know, assume that you are a new startup. I think one of the goals of these conversations for you is for new people, for new startup founders, marketplace founders, you want to give them tips and techniques as to how to think about some of these problems. Now pricing, as you rightfully pointed out, it is an area of technology which is sort of very arcane, right? It's sort of limited to the domain of mathematicians and statisticians and computer scientists. So I try to demystify that from a business perspective, what that really means. So let me just give you a, you know, a 40,000-foot view of what that means. So really what happens in— if you go back to our Economics 101, really what happens is that the idea is really very simple, is that, you know, there are two— generally there are two players to a marketplace. There's a supply side and the demand side. So supply side is somebody who's And let's take Lyft as an example. Supply side is the drivers who are actually fulfilling, you know, the cars and the capacity. And the demand side is people like us who are consumers generally who are requesting the ride. Now, as I was referring to a minute ago, generally, sometimes what happens is that these— generally what happens is the marketplace is operating at a steady state, right? Which is what you use, the word you used is liquidity. So it's— there is good liquidity in the marketplace, meaning one way of sort of, you know, going down one level, good liquidity means that the orders that are coming in or the demand that is coming in is clearing at a rate of a steady state. Like there's no bad service quality, there's no unmet demand, there's no unsatisfied supply. Generally speaking, both sides are satisfied. I think things start to go wrong when one of them goes out of whack. For example, you know, you have— you had a baseball game or you had a rock concert, and then now suddenly everybody is kind of exiting out of the venue and everybody wants a ride. At that point, there is a demand spike. So how do you plan for that? How do you anticipate that? Either you plan for it ahead of time, or you need to have systems which in real time will be reactive and very, very fast so that you can actually— The, the real goal behind surge pricing is— this is a little ironic, uh, people who are you know, from the technology industry will probably understand this, but for a general consumer, this is— it's not how it is perceived, unfortunately. So the goal of surge pricing is not to make money. It's not to make money. It's not to exploit, you know, people who are— there's a high demand and you're trying to exploit and make more revenue because there is a high demand. That's not the goal. The goal is to actually restore the balance of supply and demand. And generally, and the way it works is So this situation where there's a spike in demand and there aren't enough drivers in the Lyft scenario, same thing in the ship scenario, for example. But in that scenario, what you do is you also simultaneously raise prices. And the idea is that people who feel like they don't need that service urgently will either choose to wait or they will just drop out of the marketplace completely, right? Like, you can— I think we can identify with what we're saying. Right, which is, you know, I can wait for a— the prices are very high right now for Lyft. I'm okay to wait for like 15-20 minutes, for example. I'll try again after 15 or 20 minutes. Or, you know what, I'm just gonna take the bus. I don't even care about like the prices are abnormally high. Generally, that's what happens. The goal of surge pricing is to really just focus on the urgent demand. And by the way, the way these marketplaces work, or generally any marketplaces, they are sort of the connectors, right? So this marketplace is then— Lyft as a marketplace is then going to offload that money that is coming in, the incoming revenue. It's going to try and offload that to the supply side, to the drivers. And so their payouts also go up. And so the idea is that one side, you know, you're increasing money, increasing the, uh, the cost so that the non-urgent demand drops off. On the other hand, you're actually increasing the payouts so that the supply— more drivers are motivated to actually come to the marketplace. And then basically you kind of level out at a certain price point, you level that out, and then you bring liquidity and, you know, try and bring the marketplace back to steady state. So again, as I said, really, really interesting problems. One of the things we used to say at Lyft, and it's true, which is a little ironic, is the goal of surge is to get out of surge. It's not to keep surging. So, you know, the goal of surge is to get out of surge. So yeah, some of those problems are something that we see at Lyft as— at Shipt as well. And it's a very interesting and exciting space to work in.
