TRANSPORTATION AND LOGISTICS BRIEFING: Lyft to test self-driving cars in California - Update on FAA commercial drone regulations - Postmates expands Prime-style subscription service

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LYFT TO TEST SEMI-AUTONOMOUS TAXIS IN SAN FRANCISCO: Lyft has partnered with autonomous car software startup Drive.ai to test semi-autonomous cars for its ride-hailing services in the San Francisco area, Recode reports. Lyft users can opt in to the test program for free rides in the semi-autonomous vehicle. A driver will be present during the tests, as the cars can only drive autonomously in certain areas. California's self-driving car regulations also require a driver behind the steering wheel at all times.

Lyft will use Drive.ai's fleet of testing vehicles equipped with the startup's self-driving technology for the tests. The cars can only drive themselves on certain stretches of road that have already been pre-mapped, allowing the cars to reference high-definition maps of their surroundings. This means the cars won't rely solely on their sensors and computer systems for safety and navigation. Uber has similarly tested self-driving taxis in pre-mapped areas of Pittsburgh and Phoenix. Over time, expanded and more detailed mapping will allow Lyft, Uber, and others to expand their self-driving tests to more routes in more places.

Lyft and Uber are both racing to put self-driving cars on the road to improve their margins. By replacing their drivers, self-driving cars would allow Uber and Lyft to collect riders' full fares for themselves, instead of splitting the fare with their drivers. Self-driving cars would also be able to operate continuously, providing more rides for more passengers. Providing more rides at higher margins would allow the ride-hailing companies to drastically reduce their prices, possibly to the point that consumers abandon car ownership in favor of cheaper on-demand rides.

Lyft is taking a multi-pronged approached to accelerate the development of its self-driving cars. The company has a number of different partners that its collaborating with on self-driving technology, including GM-owned Cruise, startup nuTonomy, and Google's Waymo self-driving car subsidiary. Additionally, Lyft launched a new division this past summer devoted to developing its own self-driving technology. Uber has relied more on in-house resources for self-driving technology development. Lyft is still several orders of magnitude smaller than Uber in both users and revenue - even though its made important gains this year - but could make up significant ground if its multi-pronged approach helps it beat Uber to putting self-driving cars on the road.

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LAW ENFORCEMENT AGENCIES HOLDING BACK COMMERCIAL DRONE REGULATIONS: Drone industry insiders say that law enforcement and security agencies have torpedoed efforts to allow wider adoption of drones for commercial purposes, according to a Wall Street Journal report from the InterDrone conference in Las Vegas last week. FAA and industry representatives said that efforts to develop new rules that would allow commercial drones to fly over crowds at public events or gatherings were effectively vetoed by the FBI last year.

Many in the industry are now worried that law enforcement and security agencies may veto or postpone new commercial drone regulations. The FAA is expected to release new commercial drone regulations next year. However, the FBI and other law enforcement agencies are concerned about the ability to remotely track and identify individual drones. Those concerns are obviously heightened when drones are operating over large crowds, opening the possibility of a terrorist attack using a drone. Terrorist groups have already used drones for attacks against civilian and military targets in Syria, Iraq, and other places, according to the WSJ.

NASA, the FAA, and a slew of different drone companies are working on standards for air traffic control systems for drones that could handle that task. Those standards are still in development though, and remote tracking and identification of drones remains complicated task for law enforcement and regulators.

In the mean time, FAA Chief Michael Huerta told the WSJ that the agency is coordinating meetings between drone industry representatives and law enforcement officials to come up with viable solutions to security concerns. That may help alleviate some of those concerns, which will likely be critical if the FAA is to deliver new commercial drone regulations on time next year. Huerta would not confirm whether the FAA will be able to meet the 2018 deadline for those new regulations, and said that the FBI had objected to some parts of the first draft the FAA compiled. Those new regulations are expected to open up new commercial drone applications by eliminating the FAA's line-of-sight rule, which prohibits commercial drones from flying beyond the sight of their human pilots. Eliminating the rule would allow more companies to operate drones remotely, possibly clearing the way for commercial drone deliveries like Amazon has been testing in the UK. However, law enforcement concerns over remote tracking and identification may force the FAA to keep the rule in place.

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POSTMATES EXPANDS ITS "UNLIMITED" SUBSCRIPTION DELIVERY SERVICE: On-demand delivery startup Postmates announced that it is expanding Unlimited, its loyalty program that provides free deliveries for subscribers for a flat fee of $9.99 per month, Tech Crunch reports. For context, Postmates operates a network of more than 100,000 couriers in more than 200 US cities, and raised $140 million in funding last October at a $600 million valuation.

The Unlimited program will now cover all 250,000-plus restaurants and other merchants listed on Postmates' app, and will offer free delivery on orders above $20. Postmates first launched Unlimited about 18 months ago as an Amazon Prime-style delivery service with a group of 10,000 merchant partners and a $35 minimum order threshold. Postmates said that about 10% of its customers already subscribe to Unlimited, with that number growing at a pace of about 50,000 per month.

Unlike Amazon Prime, the Unlimited program does not run at a loss, according to Postmates. Unlimited subscribers' average basket size is just below $35, 30% higher than non-subscribers, the company said. Additionally, Unlimited subscribers order through the app at a high frequency because they mostly use it for restaurant deliveries, which consumers tend to order more often than household goods, books, or apparel.

The startup said that it also plans on expanding to new markets soon, and is lowering its delivery fees for non-Unlimited subscribers. Orders from Postmates' 12,000 "Partner" merchants will now cost $3.99 and will no longer be subject to a delivery service fee, which was formerly charged to help cover the costs of smaller orders or longer deliveries. Orders from all other merchants will cost $5.99 plus a service fee based on the size of the basket -distance was formerly factored into the fees as well. The expansion and lower delivery fees are clearly aimed at attracting new users, which Postmates hopes will then purchase Unlimited subscriptions. Customer acquisition and retention are growing more difficult in the increasingly competitive crowdsourced delivery space, where Postmates is battling a variety of players including DoorDash, Instacart, Amazon Restaurants, and UberEATS.

In other news…

• The FBI is launching a probe into an Uber program that the ride-hailing giant used to track drivers working for rival Lyft. The program used a piece of software, dubbed "Hell," to create fake Lyft user accounts, allowing Uber employees to see nearby Lyft drivers and Lyft's prices offered for specific routes. Additionally, the program allowed Uber to see which of its own drivers also worked for Lyft, a common practice known as "double-apping." Uber then targeted those drivers with special bonuses and promotions to encourage them to work for Uber more. The company stopped using the software last year, fearing the software could open it up to legal action. The FBI, in conjunction with the Manhattan US Attorney's office, is investigating whether Uber used the software to illegally interfere with its competitor. Uber also faces an ongoing lawsuit by Google's Waymo self-driving subsidiary concerning its self-driving program, and an investigation into a separate piece of software, called "Greyball," that Uber used to track law enforcement and regulatory officials investigating its business practices.
• LiDAR sensor manufacturing startup Innoviz raised $65 million in Series B funding. Delphi Automotive and Magna International, two of the world's largest auto parts suppliers, participated in the funding round, an important vote of confidence for Innoviz. LiDAR sensors are one of the most common sensors used in self-driving car tests today - they allow autonomous vehicles to sense objects in their surroundings by refracting light off of those objects. Innoviz says that its LiDAR system is better at sensing in inclement weather than competitors, and plans to use the new funding to build toward mass production of its sensors. It plans to release a test version of its sensors in 2018 that automakers can trial, and a market-ready version in 2019. The tie-ins with Delphi and Magna could allow Innoviz to leverage their deep relationships with automakers to rapidly get its tech into commercial vehicles once it's ready.
• Volvo announced it will acquire car valet startup Luxe for an undisclosed sum. Valet offers an app-based valet and concierge service with specific dropoff points where customers can leave their car. Luxe's valets then park the car, and can wash or refuel the car upon special request. Volvo said that the acquisition will give it access to Luxe's algorithms for routing, logistics planning, and estimating arrival times. That could allow Volvo to develop its own last-mile delivery service, something other automakers that manufacture delivery trucks are exploring. Additionally, Volvo could sell Luxe's valet service as an add-on for its higher-end models. Luxe's staff will join Volvo's Silicon Valley office, which is working on new automotive technologies and digital services.