The most exciting implication here is that we can finally pour over the financials of a major ride-hailing company. Whether these companies have the unit economics to succeed is, remarkably, still an open question.
> Whether these companies have the unit economics to succeed is, remarkably, still an open question.
I don't think there are many people who doubt that ride hailing apps can be done profitably. I think the big question is (a) is it a commodity business (I personally believe it is) and (b) can potential profit margins support their astronomical valuations.
I think the main problem (though MUCH more so for Uber than for Lyft) is that it is valued as a "network effects" business, e.g. something like a Facebook or a Google with substantial pricing power, but I think the reality is that it will turn out to be much more like the airline business - basically a commodity business where raising prices is extremely difficult.
> but I think the reality is that it will turn out to be much more like the airline business - basically a commodity business where raising prices is extremely difficult.
I believe you are onto something there. What did people do before Lyft/Uber? They walked more. They biked. They took public transportation. Maybe they drove themselves. Maybe they drove/carpooled with a friend. Maybe they took a good old fashioned taxi.
Faced with a price hike attempt, those options are again always on the table.
Sounds like you’re talking about the price elasticity of demand. You describe airline travel (at least for personal economy class flights) to be fairly inelastic, meaning that if the price rises even a little bit, a lot of people will just drive or not take the trip. That certainly rings true to me. I recently bought US domestic flights home for Christmas, and I certainly chose the absolute cheapest flight that fit the schedule and had less than 2 hours of layover. The price was already brutal, and I felt like I was very near the top of my price tolerance.
But I feel like the Lyft/Uber mode of transport is generally more spontaneously and is therefore generally more elastic. Sure, there are undoubtedly some inelastic use cases, like regular commutes, but there are also some very elastic use cases, like a ride home from the bar or a rescue from the rain. I am definitely interested to see how the breakdown of these different use cases turns out to be, but for me and my friends and peers in the SF Bay Area, the latter use case definitely dominates.
Historically, I would have said that taking taxis was fairly price inelastic. You knew it would be relatively expensive but you either didn't care or it was really the only practical way to get from Point A to Point B.
However, my sense is that for at least certain locations/demographics, that's probably changed with Uber/Lyft. I don't personally use them much but anecdotally a lot of people have started using them as an alternative to public transit or just because it's easier if they're going out for a night on the town. And I work with a lot of people for whom the reflex seems to be to pull out a smartphone anytime they need to go more than a few blocks while traveling. I expect those behaviors would change if the price suddenly went to 2X. (It also definitely makes a difference at the margins when renting cars and that's mostly a straightforward price calculation.)
Ugggh, yes, no matter how much I read about this stuff I will always get that backwards. I think I always mix it up because I think of the price tolerance being elastic instead of the demand being elastic.
I think it’s probably more like them capitalising on the elastic nature of the demand for these scenarios. Definitely an element of control as well though, as there is increased demand too (but it’s likely more elastic and therefore more tolerant to price increases).
I can imagine it. I’ve lived in San Francisco since 2011, and I remember using Uber, Lyft, and Sidecar. I have had long periods where I was “loyal” to each of those three, with Lyft being the current and longest-lived loyalty. At various times in the past I would comparison shop between all three, looking for the cheapest or quickest option.
Unit economics don’t really matter in this case. Lyft and Uber could be hemorrhaging money but the paradigm has fundamentally shifted. Ownership as we know it will become meaningless. Sure, you could buy a self-driving car, but do you need to? Waymo One’s launch will determine the future of ridesharing companies, not unit economics.
Ownership as we know it will become meaningless. Sure, you could buy a self-driving car, but do you need to?
I wonder if people who say things like this are actually drivers, because every driver I know has a car full of random stuff that lives permanently in it incase it’s needed. No one is going to carry all that with them; if they did it wouldn’t live in the car in the first place! Ownership isn’t going anywhere, or taxis would already have killed private ownership (and hotels would have killed the housing market...)
But then where do people without cars keep all of these necessary items? I live in an urban area, I own a car, and I have almost nothing in it besides a car seat.
Taxis have killed ownership in places where taxis are more convenient than car ownership. As ride sharing becomes more ubiquitous—especially as self driving vehicles move into the space—that's going to become a reality in more and more locations.
First of all, I just have the car customized for my needs. Cables for electronics, roof rack and cradles for kayak and canoe, seat covers, etc. Then I tend to keep rain gear and various equipment related to the current season's sport so I don't need to remember to put it in the car when I go out. Various spares of things like glasses in case I forget. Things like jumper cables, windshield fluid, and warm clothing in case of problems.
Do I need to keep all that in my car? Probably not and maybe I wouldn't if I lived in a city and just needed a car for basic transport now and then. But it's convenient and it describes how pretty much everyone I know uses their car--especially if they have kids.
And, as I said elsewhere, I actually expect self-driving will tend to cause people to spread out more and create even more incentive to make cars a customized self-contained work and entertainment space.
Added: More transportation options definitely make a difference at the margins, whether it's a second family car or dropping an infrequently used automobile in the city. I know a couple in SF who don't own a car but depend heavily on a combination of biking, short-term car rentals, regular rentals, and Uber/Lyft. Pre-Zipcar and Uber/Lyft I'm guessing they'd still have a car. On the other hand, I live in a semi-rural area and I'm going to own a car pretty much no matter what other options you introduce.
My car also serves as a convenient mobile storage locker whenever I go somewhere. I can park it and leave my jacket, sports equipment, lunch, umbrella, etc without having to carry that stuff around with me. But it's easily accessible if I need it. That convenience and security is worth a lot.
To me this sounds like a bizarre example - I and everyone else who lives in European cities do carry all of these things on our persons. I don't see this as an inconvenience. It all fits neatly in a briefcase or a backpack of your choice.
Besides lunch of course, because we're not savages. We enjoy our lunch sitting down at a restaurant. ;)
Off the top of my head I have chargers, sunglasses, brufen, snacks/water/hand gel, a giant umbrella, assorted maps and a compass, a change of clothes or two, boots, IFAK, shovel, a couple of flashlights and some tools. Most of these things are used frequently enough that it would be massively annoying not to have them, and some if you need them then it’s too late to get them from somewhere else.
This makes a lot of sense. I have never seen Pore-Over written right, and pronounced, I always thought it was Pour and as an immigrant (even though i came here when I was 5 years old) it never quite made sense, but I went with it. Now that I know the word "pore" exists with this definition, it makes so much more sense.
Another thing to add to your learnings for the day is the difference between “metaphor” and “onomatopoeia”. The latter is only for words that are related to a particular sound they are describing, e.g., “quack”, “bang”, “sizzle”, “whoosh”.
“Pour over” is the sense you describe would be a metaphor.
I never thought of it as onomatopoeic before but, if I string the sound out – pooooooour – making the “o” noisy and its pitch rise slowly it does remind me of the sound of a cup being filled from a tap.
Ok, I still think it’s an unusual example but you’ve convinced me.
I retract my earlier comment and replace it with a “today I learned” for me. :)
From a purely investment point of view, why would anyone invest in Lyft over Uber? Lyft has a smaller footprint and only operates in the US (except Toronto). They are more susceptible to economic conditions in a single country, the US, and every point of marketshare they get is a zero-sum game against Uber and presumably expensive because Uber won't give it up for free.
Uber has a global operations, is in multiple streams of business and has diversity across business lines and countries so even if there's a recession in one country, it might be made up for in other countries.
Southwest Airlines for a long time just focused on point-to-point flights, avoiding money-losing flight patterns that routed passengers through a Chicago to New York type connection. Additionally, SWA only maintained 737's, and free checked baggage allowed for faster onboarding and deplaning, and therefore, faster turnaround times. Eventually, this little airline became the largest airline after the major airlines botched their oil hedging, customer service, etc.
From an outsiders view, Lyft looks much more operationally focused. Instead of legally battling a bunch of different countries, it eyes only the biggest market, allowing it to slowly expand after it sees how Uber fares in each country. Instead of settling a lawsuit over allegedly stealing self-driving car technology, it is focusing on its core product. Instead of buying 19-month-old scooter company for $2B, it is spending money on its core value proposition.
At some point, investors might not hand over Uber any more cash. Meanwhile, Lyft could get to profitability more quickly while Uber deals with acquisition/project "hell" as Elon would say. As an outsider looking in, Lyft looks like it is playing the long game, drafting behind Uber until Uber catches another edge and slips.
What a great example! I'm realizing that perhaps the "second mover advantage" may be more pronounced in markets with low switching costs. Flyers can easily compare airline prices against one another, and drivers are incentivized to boot up 2nd, 3rd and 4th driving apps.
Low-margin businesses can't afford to spend as much on R&D, make mistakes, etc. They have to win with small executional advantages.
IIRC, Lyft was the first mover, Uber shamelessly ripped off Lyft's model that anyone can be a driver and come out with Uber X. So, imo Lyft was the first mover, but was smart to let Uber face all the heat sacrificing short term growth for long term success. Uber has been in too many things for me to believe that they can sustain the business (I may be wrong)
Here is a press release from Zimride sent circa Thanksgiving 2008 (after they had been underway for about a year):
STUDENTS TO FIND RIDES HOME FOR THANKSGIVING ON FACEBOOK
Useful Facebook application, Carpool, helps match students for rides home
Finding a ride home for Thanksgiving with friends and classmates has never been easier. Students can conveniently use a Facebook application to share rides home for some home-made turkey. The application built by Zimride is called "Carpool", and having launched in 2007, it has become the most popular online ridesharing service in North America.
Carpool on Facebook is especially popular among students on college campuses, where it has replaced traditional ride boards at student centers with a more convenient online interface. Over 25,000 rides have been posted on Carpool in the last four months. "The growth is unprecedented," comments Logan Green, a co-founder of Carpool. "It shows that not all popular Facebook applications have to involve ninjas and vampires. An application like Carpool helps students find safe rides in addition to cutting their gas expenses and reducing CO2 and it's clear students value that."
The Carpool application uses Google Maps technology to match students traveling in the same direction. After the trip, users are encouraged to leave feedback, to help inform future Carpool users. The application makes ridesharing a more social experience. "It really feels like I'm part of a community," says Corey Earle a student of Cornell University. "I could never trust an anonymous service like Craigslist because I wouldn't know anything about the other users. Using Carpool on Facebook, I can choose to ride with people in my school who I know I can trust.' Carpool on Facebook was built by a team of recent graduates who saw an opportunity to make carpooling more popular at universities across the country. John Zimmer, a co-founder of Carpool, says, 'We're thrilled that university students and administrators are reaching out to us to help make ridesharing become a part of mainstream culture on college campuses." Zimride has worked with over 20 universities since creating the service to build custom systems for their campuses.
If you have a car, offer your carpool today. If you don't have a car, find a ride and get home to the home cooked turkey, stuffing, gravy and cranberry sauce…don't forget to share!
I don't think you are wrong. I have both apps, and my last 10 rides have been in Lyft, because it's consistently cheaper. If uber wants me back all they need to do is compete on price, but I think their operating costs are too high to do that, so they will eventually lose out from being too big and have to either scale back or implode.
Any rides I have taken where Lyft is available, I ride with Lyft. Else, Uber. (mostly NYC/NJ/Toronto areas Lyft has been consistently cheaper for me).
Cheapest rideshare wins. race to bottom. Only way Uber / Lyft can avoid death, is with business rides and lockin. There no one is price sensitive, and they can make money off of business rides (Lyft is doing this really well, in nudging users to have more business rides).
My employer has a business account with Lyft and I use it on all business trips. It's convenient because everything goes to our expense reporting system automatically. But businesses have no loyalty and would quickly shift to Uber for lower prices.
Lyft was the one to fight the battle of having 'ridesharing' become a thing. Uber didn't mind if the decision went one way or another as they already had a lockdown on the "professional driver market".
>> Instead of buying 19-month-old scooter company for $2B, it is spending money on its core value proposition.
Lyft aquired a scooter company Motivate, and announced the plans in June about their bike and scooter strat.
>>At some point, investors might not hand over Uber any more cash.
Lyft has raised 4.9B. It's the unicorns of Unicorns with a burn rate to match.
I agree with the OP, am pessemistic of an IPO, and would say it has the possibility of failure. I don't think that will happen, but an IPO flop of this scale would have major repercussion on the funding market in general. Again with the Hauwei arrest today, and the stock market in a major flux as tensions rise with China it has added risk.
A small point, but Lyft acquired Motivate for $250m, which is a lot less than $2bn. Plus, Motivate has profitable bikeshare programs in various cities across North America, and have done for many years. They're not a flashmob, fly by night scooter rental company.
> Instead of settling a lawsuit over allegedly stealing self-driving car technology, it is focusing on its core product. Instead of buying 19-month-old scooter company for $2B, it is spending money on its core value proposition.
But Lyft has a self-driving car group in Palo Alto, and it bought the bikesharing company, Motivate.
Interesting. 2.5x revenue though and has exclusive city contracts. I still view this differently than paying $680M pre-revenue for Otto. On the scooter side, at $300/scooter, Uber could buy 100k scooters and stick an UberScoot button on their app and probably can more ridership than any of the year old startups.
This assumes those scooters aren't impounded, damaged or left with dead batteries. There are no human drivers constantly maintaining these scooters, at best a random person may come by and charge them (for a fee OFC), but no quality assurance or maintenance is happening in a timely manner. This is why scooter companies are seeing their average scooter break after 4 months, there is no maintenance plan and they aren't built to be on the street, unsheltered 24/7.
If Uber wanted to operate a scooter division, I still think it makes way more sense to do it themselves at this point given Uber has no barriers to enter this market. Millions of people already have Uber on their phone and a number of drivers are probably willing to pick up scooters to charge them or transport them for maintenance if needed. I'm just saying it seems way cheaper to roll out a pilot program with 10,000 scooters than investing hundreds of millions to a couple billion dollars in another company that effectively is letting you white label its scooters (that are manufactured by another company). Is a scooter maintenance company worth $2B?
Lyft has gone through quite a few iterations of its own. Predecessors started before Uber but, even more recently, it moved beyond the pink mustache and fist bumping into being essentially an Uber clone. I (and apparently others) found the whole "be buddies with your driver" thing to actually be a real turn-off.
I agree, for me too. On the other side, the "we want to get rid of drivers" and "squeeze driver" type of stories I hear from Uber made me go to Lyft by default. Most drivers I ask which drive for both prefer driving for Lyft.
> Uber has a global operations, is in multiple streams of business and has diversity across business lines
This can be a reason why one would be more interested in Lyft. Uber seems like a distracted player who's losing money on many other markets and businesses, not to mention hundreds of millions of dollars on self-driving cars (and flying cars?!). Lyft is much cheaper (15B valuation), while Uber is much more expensive (120B?). If I invest 1B in Uber, my money would vanish in 1 quarter (yes they're losing 1B/quarter). Those 1B dollars would be split to invest in flying cars, uber eats freight bike/scooter, battles in India Middle East. On the other hand, if I invest 1B in Lyft, I'm sure those 1B would go towards gaining market shares in the US which is by far the most important market for the two players.
Second of all, personally I think if Lyft failed and the stock dropped by half. Some other dominant players would look to acquire Lyft. I'm thinking about Google's Waymo One plus Lyft's network. Apple seems to have a lot of cash to burn also, and they're also developing SDC. On the other hand, Uber's share price has to drop more than 10x in order for it to come close to a reasonable acquisition price.
I can guess few of their story points (hard to know until they release their numbers):
1) The market can support multiple players running profitable (i.e it's a 2 player or 3 player market). Think of the drugstore industry (Walgreens & CVS).
2) Lyft focuses on profitable higher income markets like the US and Canada so they can have a higher margin and not get into pricing wars with massive foreign players (Didi, Oola, etc.). Uber is bleeding cash in their foreign markets.
3) Lyfts valuation is more reasonable relative to their numbers than Uber's. At the end of the day your investment thesis should not be just on the company but also the price you are buying at.
4) Lyft could manage their costs better and hence be closer to profitability to Uber (this is a pure guess but seems possible)
I have been pretty successful investing in 2nd players when they are priced correctly.
2) Lyft focuses on profitable higher income markets like the US and Canada so they can have a higher margin and not get into pricing wars
This, I think, is more important than many people realize.
When I was driving for Uber and Lyft (for about eight months, two years ago), Lyft had an entirely different clientele.
Uber was for the poors, the frat boys, and the average Joe Lunchbucket. Lyft was a decidedly better class of passenger, paid more per mile, the people tipped more and more often, and the passengers were 953% less likely to throw up in your car.
Drivers on their way to an Uber pickup would drop the fare if a Lyft opportunity came in.
Lyft doesn't capitalize on this perception that it is "better" than Uber, but my sense of the situation from talking to dozens of drivers and hundreds of passengers is that both the drivers and the passengers knew it.
Lyft could really differentiate itself in the market, if it decided to go this route (so to speak). The same way that Apple positions itself as a premium brand.
Random guess: most of the pople I know who use Lyft do so because they've been put off at one point or another by one or more of Uber's scandals - Uber is widely viewed as the 'default', while Lyft is the more 'moral' option. If this pattern holds true, it means that the Lyft userbase will generally be a group that is A. better informed overall and B. more willing to make purchasing decisions driven by their ethics, which all in all suggests a more thoughtful clientele.
Lyft's fare is predictable, and rises little even at peak hours. The fares are mostly in the same ballpark as Uber's.
Lyft's Android app just works, and is reasonably usable. I've been burned by Uber's app crashing after an update.
I keep using Lyft over Uber; most drivers I see in my area (NYC and Brooklyn) have both apps installed. But many seem to have the Lyft-specific sign under the windhshield, but rarely an explicit Uber sign.
As a corporation, Lyft seems to be much less showy, and does not seem to be losing gargantuan sums on pie-in-the-sky projects. They project a nicer, if understated, image; this is also somehow attractive, and likely says something about the way the company is run.
It's not really possible to make a direct comparison because Uber's rates (at least in my market) are a game.
Uber has all kinds of crazy promotions, like paying a flat $6 per ride for a whole month, or paying $25 up front for ten rides, no matter how long they are. Of course, there's also surge pricing that everyone knows about.
The worst is that Uber charges passengers more if they're traveling to or from "rich" ZIP Codes. In theory, Uber is doing this because we were supposedly carrying rich people around who could afford it. But more often than not, we were transporting low-wage maids and other service people from one job mucking out toilets to another. So Uber was actually hurting the people who could least afford to pay more.
I'm so glad to not be associated with Uber anymore.
> Uber has all kinds of crazy promotions, like paying a flat $6 per ride for a whole month, or paying $25 up front for ten rides, no matter how long they are. Of course, there's also surge pricing that everyone knows about.
Lyft frequently gives me offers like "10% of your next 10 rides" and "25% off this weekend!". I think it's because I'm only an occasional rider (1/month or so unless I'm traveling). Uber does not give me any promotions.
Uber takes the flack, gets the law changed, creates the market. Lyft sails in and gets most of the benefits, without those costs.
Uber doesn't have a massive moat. Drivers can have both apps, users can have both apps. You attract drivers by paying them more, you attract riders by charging them less. Uber for now can afford to beat everyone on both those fronts, but eventually they will have to start making a profit. When that happens Lyft is best placed to take advantage.
A big reason I switched to Lyft was hearing consistently from drivers that they preferred it. This has the added bonus effect of meaning that wait times for Lyft are way lower than Uber on average IME, since drivers are more likely to pick up a Lyft fare.
Lyft used to be Zimride but Zimride was absolutely nothing like what we call rideshare today. More like a slightly more codified, less sketchy version of CL rideshare.
Fun fact, I was an early and enthusiastic user of Zimride (for making a long distance relationship work between the Bay Area and SoCal). I liked the product and once upon a time drafted an e-mail applying for a position there. I assume I would have been employee like ... 5 or something. Never sent it and it hung out in my Gmail for many years. Decisions, decisions :-)
Uber (Founded March 2009) created ride sharing in SF before Lyft (Founded: June 2012). Uber just started with commercially licensed Black Car drivers and Lyft started with anyone with a car and a drivers license. Then Uber moved down market with UberX and Lyft moved up market with Lux.
I think this is just a matter of semantics. Are you saying we should call a black-car hailing service "ride sharing" simply because you booked it with a smart phone app rather than calling a number? (Remember that Uber didn't even use a novel business relationship; there have long been dispatchers with a single phone number that distribute the rides to multiple independent black car agencies.)
To me, the key change deserving a new term was allowing completely independent, non-professional drivers, and I think Lyft beat Uber to that. (Heck, some purists would say "ride sharing" should be reserved for cases where the driver doesn't make an wages, just reimbursement for costs.)
The same reason you invest in anything else? You think you can make more money from it than the alternative within your investment timeframe.
Uber's last private valuation was, what, $60 billion? How much ROI do you think the LPs in the last round want to see from that investment after a few years? That sets the lower boundary for Uber's IPO price so unless Uber does a down round (which wont bode well for investor confidence), they're going to have to deliver a hell of a lot more value for their share price than Lyft, which means their is a lot more risk attached to them than lyft.
Former Lyft eng here of 2.5 yrs.. Lyft is kicking major a. Don't mean to hype it. Even if they weren't IPO'ing I can tell you they are firing on all pistons. I'm pretty sure the financials are in good shape too.
Basically if you believe that ride hailing apps will succeed as a sector and that there is room for two companies in the long-term, then Lyft gives you a much better "value" investment in terms of the ratio of the company's valuation to the number of customers or dollars of revenue.
Uber's international focus hasn't been entirely successful, and I guess its more of a money drain as well. Why Lyft is ready for an IPO before Uber could have to do with them focusing on making US market profitable instead. Uber has a much steeper hill to climb (even if the summit is higher).
> every point of marketshare they get is a zero-sum game against Uber
well, marketshare (a percent value) is by definition a zero-sum metric. however, what you mean to say, that every new customer of lyft is a customer less for uber, is false. there is no network effect, like social networks or marketplaces. new customers for uber may also be customers of lyft, and in a true rising tide, and one company may prime the market for the other.
Anyway, as the smaller player, given the lack of rider network effect and the clearly established lack of driver loyalty, they could quite easily see much faster growth. (going from 1->2 is much more significant that 100->110, eg). And growth rate, not absolute market value, is what investors really care about.
They are more susceptible to economic conditions in a single country
Taking Lyft to be a single-purpose undiversified company, isn't the opposite true? I'm no economist nor MBA, but aside from cashflow wouldn't a smaller company be more resilient to conditions due to lower resource demands?
every point of marketshare they get is a zero-sum game against Uber
Is this...true? First, because there's more than two players in the industry, and second because there can be more demand than cars among all of them.
Regarding your first point, the idea is that if the US economy tanked or crashed Lyft would be utterly screwed but Uber might be able to ride (haha) it out with revenue from its non-US markets. In reality, if anything that bad happened to the US the rest of the developed is most likely screwed too, but that's the concept.
As for your second point, you might be right. It's not EVERY point of market share, but it must still be a significant number that is wrested from Uber with great difficulty.
Taxis doesn't seem like a business where there are economies of scale from having a larger global footprint. Uber may have a small advantage in software costs, but labor and equipment must be the largest costs, and the labor is bringing the equipment for the most part; Uber may be able to do better on leases than Lyft, but I'm not sure how much of their earnings are coming from that.
If you're bullish on ride hailing apps and bearish on Uber in particular, that gets you there. Plus there's generic diversification arguments - most returns come from a few companies that do really well, so you need to "buy the haystack" to ensure you own the needle.
As a customer experience I prefer Lyft because they let me give tips. I doin't think Uber drivers make a living wage, so I like trying to figure out what can be added to offset the low base/fees so the drivers can do okay.
Me too - now that the Uber app has tipping I choose to tip a nominal amount ($2 usually each trip). But prior to them adding it I was happy to not tip at all, even if in the end the price point for the trip was $2 higher.
I'd prefer driver compensation to be worked out on Uber's end of things rather than being passed to the consumer. I know that's what tipping is - but I'm against payment structures that require tipping. I still tip because I don't want to put it on the driver/waiter/whatever, but I'd prefer for the price point to be higher and to not tip.
Because the tipping culture to me doesn't make sense? Not everyone is from NA, where it is mandatory to tip. I would rather pay more to Uber upfront and have them pay more to drivers than me paying extra on top.
Also, who says Uber drivers are getting stiffed? One of my really good friend does Uber full time in Toronto right now and takes home around $4.5k/month (before tax). He drives around 6 hours a day, 5 days a week.
Room to grow for all of the reasons you mentioned? Alongside different/better governance and perception
Also revenue. They has it.
I can more easily see how a public market shareholder would make money in a lyft holding, than in an uner holding. This isnt about getting married to a stock and putting the share certificate in a frame, this is about growth and potential addressable market, which is easier to see.
I see a lot of comments on here about the efficiency of Lyft/Uber's and lots of comments about their overspending.
The new book by Reid Hoffman, Blitzscaling, was an eye-opener for me as to how these companies operate and what seems as incredibly inefficient now will all be but forgotten tomorrow when they have complete monopolies over all transportation... The nature of technology makes it winner take all almost always, it's only a matter of time until they can offer other forms of transportation to people. Perhaps people someday won't even own any cars at all especially if it's cheaper to call an autonomous one from your device whenever you need it.
These are interesting times we are living in and these business models are completely counterintuitive to traditional norms of taking small risks and that much is obvious from seeing the business models of Uber/Lyft, WeWork, Airbnb, etc.
To start a new ridesharing company, you have to get drivers and riders. You'd have to offer them a ton of incentives to start driving/riding with your service, when the existing options are well established.
For drivers, Lyft and Uber have incentives (lower fees) if you do the majority of rides with their service, which incentivizes you to only drive with one service.
When's the last time you downloaded a new app on your phone? For me it's been weeks, maybe months. For so many people, it's easier to just not try your new rideshare service.
To start a new ridesharing company all you have to do is attack and carve off the most profitable element of the big company's product mix.
All you need is to undercut them in certain high profitability routes, like airport runs, or luxury vehicles for executives, or anything, and you have a toehold.
There are some positive network effects, but there are also negative network effects. Having more users doesn't mean you always win as the big company.
For example if you have no customers all you have to do is be outside of a stadium at the end of a show, or waiting by an airport during a busy landing period, and have rudimentary abilities to let people know you exist, and you'll get defectors.
Not sure why you're saying the op is not correct. Nothing you said discredits that.
The reality is that both are true.
There are multiple positive network effects at work, as it's evidenced by the growth of these companies.
However the barrier to entry is super low, so competition can be quite high. Like you said, just by subsidizing rides/drivers you will start gaining some market share.
In the end it's all gonna be about who has the most cash and whose efficiency is the highest. Yeah you could hire a promoter and give out flyers outside a venue, but if you check the data, the ROI is abysmal.
It's pretty easy to have a network that's not very big that always has someone at the airport, or always is available for trips that stay within a specific neighborhood, or can always be arranged with a little more advance notice, or whatever.
And the relevant part of pointing this out is that as long as that's true, which is forever, then these large companies will never be able to extract monopoly pricing.
As soon as they start gouging customers people will immediately flood in to siphon off the lowest hanging fruit or easiest segments of their customer base.
That dynamic will never go away, it's not at all clear what the point of all this buying of market share is, given that it will never be truly defendable.
Yes. You can overprovision in a constrained area and you can also let people schedule ahead of time. That's pretty much every black car service which often are not very big companies. But they tend to be relatively expensive. (Which is fine for some uses; I use one to travel to and from the airport.)
Remember that you're almost certainly not a trendsetter or first customer. You are never the person a startup goes after first. There's a whole group of people who behave very differently from you who do download new apps on their phones all the time.
There are entire chapters dedicated to talking about each group of adopters, and you saying that no one is in the "early adopters" group is simply not true.
From an economic standpoint if the winner is substantially more effective, the cost of producing the product is high, and the marginal costs of servicing additional users are small the system will end up as winner takes all. This is common in the software, sports and entertainment industries.
Because service like Lyft depends on more than just the software to provide the end service so the product is not substantially better. For the most part the drivers are also working for the competition, the time to get to the destination, and the overall cost will be similar. At some level the network effect is part of both the barrier to entry, and the quality/value of the product but it is not clear if this is enough to end up on top of a winner take all market.
Have you ever, like, actually used the shared ride options?
It can be handy when you're not in a hurry, but as long as people are involved, and they aren't always where they say they are going to be, there's a pretty hard upper limit to how efficient things can get.
A shared car is great when you have little money, few other options of transportation, and the route allows to share it with other people.
I did it a few times. But usually when I need a ride, it's because I'm in a hurry, and paying $5 more is no object. Else mass transit suffices. This only works in urban areas, but it's where the most profitable ride-hailing markets seem to be anyway.
There is a network effect. Imagine if you made a ridesharing app with only one driver. No one would use the app due to high wait times. That's an edge case but it gets the point across: too few drivers and no one will use your app, and if no one uses the app no drivers will enlist in your service.
Of course your app with one driver would get usage. Your comment contains its internal contradiction right there in plain sight.
If "no one would use the app due to high wait times" then your driver would always be available and ready to go. So someone would be happy to use it whenever the dominant app is having trouble keeping up with demand. Which will always happen from time to time as long as demand has occasional peak periods and supply has some practical constraints, which a fleet of cars always will.
You should read more into this, but even though switching seems easy in theory, the truth is different. Going through another driver application process / training takes time, and even then using two apps creates extra annoyance. You would be surprised how lazy People are even if there was a way to grow their earnings through switching.
If all of my friends are using Uber and I'm using Lyft, I get the same amount of value out of Lyft whether anyone else is using it or not.
Now, there is some network effect with new drivers signing up for a more dominant platform, making it harder to use others. Since drivers can (and usually do, in my experience) sign up for multiple platforms. That effect is greatly diminished.
I'm not sure WeWork is a great example either. Sure, they're the hip kid in the co-working space these days but there are tons of other providers of co-working and other office facilities around the world, both chains and one-offs.
AirBnB is a reasonable example because there are fairly strong network effects (as with e.g. eBay--especially in the old flea market days).
There are definitely some network effects with Uber and Lyft but they're mostly local and most people do most of their taxiing locally. There's some benefit to brand and there's some benefit to amortizing the back-end but taxis/ride-hailing is mostly a local business.
> The nature of technology makes it winner take all almost always
Citation? I am having trouble thinking of a major market where there's some company with 100% market share. Software has hudnreds of multi-billion dollar companies. Autos has hundreds? Until your scope gets very narrow, there's tons of competition.
Looking forward to reading the prospectus. Let's see the audited numbers.
A confidential filing with the SEC of an offering is a new thing. Until 2017, you couldn't do that. It's limiting in some ways. Lyft now can't say anything more about an IPO. If they do, the confidentiality can disappear.
I'm not very bullish on these ride sharing companies in the long term. More and more data is coming out that suggests that these ride sharing companies impact transportation and congestion metrics in a negative way that is counter productive to cities' long term transportation goals. Accordingly cities are layering on more regulations that will limit what has made these companies different from traditional taxi companies.
"Ride sharing" is not an accurate representation of these companies anymore. Uber and Lyft are trying to become major mobility and transportation platforms.
The core of their business right now relies on ride-sharing, but if they want to become sustainable long-term companies they need to evolve their business.
Sadly, drivers are just an input to generate cash flow. They're definitely not indispensable, especially with new short distance tranportation solutions like scooters.
At this point Uber and Lyft are really just taxi companies with nice apps. Add the driver reviews, GPS locations, and requesting a ride via an app to a traditional taxi system and it's the same. The only major advantage they have right now is that Uber/Lyft are standardized throughout cities and suburbs, whereas taxi companies are mostly local to one city.
Services like Pool/Express Pool/Line are distinctly different from taxi services in so far as opening up car-based transit to a broader range of socio-economic groups. The efficiencies of Express Pool make it competitive with public transit for pricing.
The other significant advantage is that they're cheaper. Either because they're actually cheaper (e.g. in London, black cab drivers have to train to know every street by heart, whereas Uber drivers can just rely on technology (Google Maps)), or because Uber subsidizes the passengers, but regardless, they're significantly cheaper (speaking for London).
And if you read this survey you will see that the increase in rides is because TNC's make for better mobility options than current public transport. That suggests that there is a problem with current public transport (In America) and not with TNCs.
Question that's somewhere between rhetorical and semi-serious. At what point do one of these companies increase their pricing to the point where they can operate profitably and just let volumes end up wherever they end up (making whatever cost cuts they need to on the way down)? Presumably there's some point where you can make money--but maybe not if you have a basically equivalent competitor who is willing to lose money indefinitely.
No one has seen all the numbers but both services spend an extraordinary amount on advertising, Rider and driver obtainment, market development/setup costs, and legal costs. Like an absolute shit load.
Presumably all of those costs would disappear once someone wins the market or a "truce" is called. Right now both teams are spending like crazy in those areas because they need to have best numbers at IPO time. But once they both go public and the stock prices stabilize I suspect the spending will go down and they will be more profitable.
"Presumably all of those costs would disappear once someone wins the market or a "truce" is called."
I'm not sure any single company ever truly wins this market because, as others have mentioned, the barriers to entry are pretty low. Raise VC money to subsidize the most lucrative rides/markets and Lyft & Uber will never be able to stop their spending (either through advertising or through acquiring new entrants).
The ride-share market may wind up like the airlines: heavy utilization but not amazing businesses.
>The ride-share market may wind up like the airlines: heavy utilization but not amazing businesses.
I think that's more or less what I was trying to get at. Once you build your place in the market, competition can and will come along, but you'll be so entrenched, just like the airlines, you can just cruise along (no pun intended) with very little spent on ads or customer acquisition.
Seriously, what's Uber/Lyft's long term goal? If I had to guess, destroy all local taxi services, then fix prices with their competitors and worry about anti-competitive lawsuits later. Waiting for self driving cars feels like a fool's errand.
When Kalanick was booted, I actually did expect the board to call a timeout and take a hard look at the business model while admitting that self-driving, especially in places that actually have enough density to make taxi-type services generally of interest, is a red herring. It's too far out and it's not clear what the implications are anyway.
It's not like Uber and Lyft aren't still a useful service at 1.5x to 2x current pricing (or whatever is needed to achieve profitability). Traditional taxi services suck in a lot of places. And, OK, at that point the users who only take Uber because of the VC subsidies end up going back to taking the bus. But who cares.
>destroy all local taxi services
Except they haven't. There are still taxis where they make sense as well as private car services. It's hard to see giving it a few more years is going to make much of a difference.
If Uber and Lyft prices go up 1.5x to 2x, that suddenly means that in cities, taxis undercut them.
I'll let someone chime in who understands the taxi business financials better. But in my observations, Uber and Lyft are only slightly cheaper than taxis. If prices go up, taxi companies will cut into their profits.
I'll also say we (as a society) are very lucky that Lyft emerged as a real competitor to Uber. If one of Lyft or Uber had failed a few years ago, we'd be in a total monopoly situation by now, and "Uber" would have similar meaning as "Kleenex" or "Scotch tape" -- that is, there's only one kind of smartphone ride hailing service and everyone uses it. Maybe that was the play of both Uber and Lyft all along -- stay alive long enough to force the other out and get to monopoly well before autonomous vehicles enter. And they failed. Both are still alive. There is no one firm with a monopoly.
>If Uber and Lyft prices go up 1.5x to 2x, that suddenly means that in cities, taxis undercut them.
I'm sure it varies. I don't use them much when I travel but my perception is that they're maybe 70% or so of the price of a taxi. So not a huge difference but enough that I usually default to Lyft if there's no reason not to.
I agree about the competition. Though that's US-specific. Uber may operate under more regulation generally in Europe but I don't have a lot of personal experience.
"Uber and Lyft are only slightly cheaper than taxis"
A taxi from my home to/from the airport is $50-$55 with tip. Uber is $20-$25 non surge (which is most of the time). Before Uber, on an outbound I would always have a friend take me or drop me at BART. On the return, since the taxi is right there, I would take it about half the time.
Now I take Uber/Lyft almost all the time. I'm not sure what I'll do when/if Uber goes up to $50.
It really depends. One city I travel to fairly regularly, I tend to take Lyft because it's cheaper but I'm really indifferent to taking a cab vs. taking a Lyft for any other reason. In fact, I sometimes take a cab from the airport if there's no line and cabs just sitting there because it saves a few minutes.
Yes, taxis are generally bad in quite a few cities but it's not universal.
Many of the advantages ride sharing apps have can be used by traditional taxi services now, and there are a lot of places where taxis are fine, or more reliable than ride sharing. Taxis have their own advantages because of scale though. Lower cost maintenance with only fleet vehicles and from centrally managing maintenance, group rates for insurance, negotiating power when purchasing a fleet of vehicles. Longer term it takes either VC money, or drivers not factoring in depreciation and maintenance to stay price competitive with taxis.
The usefulness of the service is dependent on the volume. If a 2x price increase cut the volume of passengers dramatically, the volume of drivers would correspondingly fall, and the likelihood of pushing a button on your phone to summon a driver already in your neighborhood likewise falls proportionally. Perhaps to the point where the service is literally valueless.
None of this is to argue against the sustainability of the model, just to point out that no one has any idea what would happen. Network effects matter.
It's not that they aren't a useful service at whatever price level would bring them profitability at current sales levels as much as that the demand curve may be such that if they were to raise prices theyd lose at least enough sales that it might not bring them to profitability at any price point.
I.e. while someone earning $200K might decode they can afford $20 rides rather than $10 ones, someone making $50K might think differently. The "who cares" when people go back to riding the bus is Uber.
That's true. But there's a clear existence proof that there is a market for people willing to pay what it costs to drive them around. It existed before Uber and Lyft and it still exists alongside them. Certainly there's a price sensitivity curve but there's no reason to believe a national on-demand service like Lyft or Uber couldn't operate profitability in the absence of being undercut by VCs burning money.
This exactly. I think eventually we could see a Kayak-like service that just compares rates for your trip against a set and books accordingly. Containing Uber/Lyft/local taxi service/etc. It's very easy to enter the market. You just need a map in a UI (mapbox) and a way to charge people (stripe/square). There's probably a decent market for transportation-service-as-a-service. $1000 gets you all setup with a custom app (configured instance of a general app).
Drivers could have something similar where they see all the opportunities and potential fares across platforms in one app. What do they need? A list box to select the fare, then a map with reasonable routing, and a pay processor.
I'd be skeptical if ridesharing is possible without some human operational involvement. The most complex part is not the 99% of trips that go right, but the 1% that go wrong. The consequences of failure are more severe than say, a SaaS app not working correctly.
You can't own that market at least the way Uber or Lyft do it. It's so easy for their drivers to switch and it's easy for their customers. In my view they will keep their dominant market positions only while they subsidize rides and lose money. But as soon as they raise prices to be profitable there will be plenty of competition.
I think the endgame is to dump the stock on the public market so investors and execs can cash out and mission accomplished. I don't think there is any viable long term plan.
A ride hailing service needs to reach a critical density of available cars per km^2 to be useful. When you first install the app there needs to be someone nearby who will pick you up - if there's no car nearby most people will uninstall it. Additionally the more people use your app and the more drivers you have in an area the more effectively you can deal with idling (less variance in demand spikes - making planning easier for drivers). So on the contrary: I think this is a very difficult market to enter for new companies.
If you subsidize driving and subsidize riding significantly, people will sign up. A $40 bonus covers several rides for a customer so they'll hold onto the app at least until they've used their initial free offering.
Sure. There are density thresholds for any local businesses. I can't even really get Uber around where I live. Maybe there are a few scattered cars but not many. You'd be pretty silly to set up a competing ride-hailing service here.
There's probably some critical mass for these services to work well and that's going to have at least some effect on whether it makes sense for a new entrant.
The friction against this business model as well is that local governments want to reduce congestion, so they're not going to be happy to license services that are significantly increasing the amount of cars on the road.
Drivers will jump ship if somebody else offers more money. Uber has no investment in their drivers and no loyalty from them. If they can't make money with their current coverage how do they ever want to make money?
"when people no longer own cars" -that phrase assumes a lot of things will happen, none of which will obviously happen. The "sharing economy" in general parses to non Bay Area people as "deal with owning less, peasants." Imagining the idea of this being pitched to yellow vests in France...
Even if the US changes substantially and most people no longer own a car, there is little reason to believe that Lyft or Uber would come out on top, and not Enterprise, or Ford, or another new company that does not exist today
Stipulating that self-driving cars that can operate in dense urban areas in a wide range of weather conditions will exist some day...
Lots of people are still going to own cars, especially as you get to less dense areas where parking isn't difficult or expensive and cars are needed on a daily basis to go places, store things, etc.
What possible advantage, other than fleeting brand recognition, does Lyft or Uber have in a world where self-driving is a standard car feature? Why wouldn't Avis, Hertz, National, <insert new or existing fleet management company here> operate those short-term rentals? Or even the car manufacturers--although based on past behavior--they probably are primarily interested in building cars.
Exactly. Once self driving cars are there , Uber and Lyft have no advantage other other companies. Rental car companies actually have experience managing large fleets which is something Uber and Lyft don't have.
I worked for one of the rental car companies in this space. They literally don't have the ability to execute the technology required for this. They are better at the labor and capital side that the startups don't want to touch.
I don't doubt that's true today. So they either adapt or new entrants displace them. (This is actually a pretty good example of how all companies are needing to increasingly become tech companies to at least some degree.)
but their whole business is built off people owning cars.
i understand people in dense cities may drive less and some not have a car at all, but a car is people important to anyone outside a city in ways ride share will not replace easily. this has nothing to do with lack of public infrastructure, it’s the benefits of being in control of your time
If/when mainstream self-driving eventually arrives, there's a good argument that it will provide the incentive for people to move out to more rural locations where there are many reasons to own your own vehicle.
If you live somewhere that parking's easy, there are a lot of reasons to own your own vehicle which mostly depreciates based on how many miles it's driven anyway. In addition to always having the vehicle available, you can customize it for your needs (sports, kids), use it as a sort of mobile storage locker, install a nice sound system if you're so inclined. If you don't need to drive, I'd expect more people to want a customized work/media entertainment space in their vehicle, not fewer.
Massive fleets of autonomous vehicles transporting people.
People often fall into the trap of seeing Uber and Lyft as a taxi service, they are absolutely autonomous vehicle companies. The human drivers are simply there to collect massive amounts of data, and build brand recognition, while the autonomous vehicle technology comes to maturity.
That's because they've done a shit job of building out a business that could act as the autotaxi. They are terribly placed to take advantage of self-driving vehicles, even if they perfect one, and they are spending in ways that are completely useless towards that long-term goal.
A self-driving taxi company is going to look a lot like a car dealership that doesn't sell cars, or a lot like a taxi company that doesn't have any drivers. They're going to have a huge number of cars, parking lots to store cars that aren't in use, and technicians to service, clean and fuel vehicles periodically.
Uber has none of these.
Meanwhile, they're blowing through most of their venture capital selling rides below cost.
This does nothing for their self-driving goals, because they aren't acquiring a "market", because there is no stickiness in taxi customers. It just wastes capital they will one day need to buy a huge number of self-driving vehicles and their maintenance facilities throughout the world.
They would be better off sitting on that giant pile of money, or operate as a cash-losing taxi company so they can build out their maintenance facilities with venture capital while having regular drivers drive regular cars (which could also be serving as platforms for data gathering and training machine learning models).
>A self-driving taxi company is going to look a lot like a car dealership that doesn't sell cars, or a lot like a taxi company that doesn't have any drivers. They're going to have a huge number of cars, parking lots to store cars that aren't in use, and technicians to service, clean and fuel vehicles periodically.
No? You'll need charging stations to charge vehicles and will have enough to meet typical demand, when a large event is expected you have vehicles come in from other areas (Indy 500, Superbowl, etc). If vehicles aren't driving people or charging you use them as courier vehicles.
Yes you'll still maintain some in parking structures at some hours but with no driver needed you can pack considerably more into the same space as a vehicle that would require a human being to enter and exit the vehicle to move it.
Kids in their teens and early 20's are losing their desire to drive, individuals are getting their licenses much later. This is already a sign that a carless society is a very real possibility. These companies know that, they're working on taking the human driver out of the equation, they're building brand recognition, they're getting people comfortable with using a driving service (a large portion of the population has never used a taxi or even public transportation, yet within a few years hopping in a car with a stranger became normal) and they're collecting more data on driving and human movement via vehicle than ever before.
>Meanwhile, they're blowing through most of their venture capital selling rides below cost.
They are investing money in collecting data. The data alone they are collecting is worth the money they are burning through. You can't go buy that data from someone because it has never been collected and there's many ways to exploit that data to generate revenue both now and in the future as technologies become available like autonomous vehicles.
Just driving around cars that aren't in use gets brought up with self-driving cars all the time, but it's just a terrible idea, even ignoring the traffic considerations. You want them evenly distributed so they can be summoned quickly, sure, but wear and tear on all the expensive parts of a car is proportional to road miles. You want to park them somewhere when they're not in use, and as long as you have peak hours you're going to have times where you need more or less cars.
Re: venture capital use, there are currently 65,000 Uber-affiliated cars in NYC alone, according to a random search. If you were to replace all of those with self-driving cars at $50,000 a pop, that would be $3 billion right there. You can argue they'll only need a tenth that number because of self-driving efficiencies and because most Uber drivers aren't constantly driving (for comparison, NYC allows ~13k taxies) and claim they'll be able to manufacture a self-driving car for half that, but you're still talking hundreds of millions of dollars for a single market.
To replace their current fleet of sub-contracted drivers with self-driving cars is going to cost billions and billions of dollars. Uber currently has something like $7B on hand and is burning through nearly a billion a quarter.
So 2021 comes around, and self-driving technology has been perfected by Uber, Google, Tesla and Ford.
You are a VC -- or a regular investor if Uber is public -- looking to invest in a self-driving taxi company.
Two companies are seeking $10B to build out their world-wide fleet of self-driving taxis. Would you rather invest in Uber, which has a successful ride-hailing App and an internally built self-driving car and is $20B in the hole on VC investment already, or would you rather invest in a newly formed corporation, Bob's Friendly Taxi Company, which has nothing, and is going to use its VC funds to buy a bunch of self-driving vehicles and develop a new ride-hailing app from scratch?
>Just driving around cars that aren't in use gets brought up with self-driving cars all the time,
I said nothing about just having cars that aren't in use driving around... I said offer them for courier/cargo service as well (prepared food, groceries, office supplies, flower delivery, etc). This is just one option for helping to use up unoccupied vehicles.
> there are currently 65,000 Uber-affiliated cars in NYC alone, according to a random search. If you were to replace all of those with self-driving cars at $50,000 a pop, that would be $3 billion right there
All 65,000 cars aren't on the road 24/7/365, NYC is also one market (and one that already has a robust public transportation system, unlike most of the country) and is far from the typical uber market.
> If you were to replace all of those with self-driving cars at $50,000 a pop
Yeahhhhhh, self driving cars aren't going to be 50k when these companies start deploying them. They'll be considerably cheaper.
You're going to have a largely spartan cabin, no wood grain on the dash, no leather, no need for Bose surround with a full-featured infotainment system, just some utilitarian seats, airbags and climate control. They'll be just enough horsepower for adequate city driving and enough battery to operate a few hours between charges.
> but you're still talking hundreds of millions of dollars for a single market.
Uber and Lyft now have to pay a minimum of $17 an hour to drivers in NYC. If they have an average 1000 drivers on the road at any time, that's $408,000 a day. Almost 150 million a year...
Even if a self-driving car only saves half of that, and we go with your random figure of 50k, if they deployed 2000 cars to have 1000 drivers replaced every minute of every day, it takes them about 16 months to recover their investment purely from savings. Likely much faster.
They'll also be able to service vehicles much cheaper than private individuals because all the vehicles are identical, everything will be bought in bulk. Tires for example are a hell of a lot cheaper when you're buying trainloads straight from a factory, fixing mechanical failures are a lot quicker when every vehicle is identical and your internal mechanics have made the same repair tens or hundreds of times and don't have to waste time digging around through Chilton or Haynes manuals to figure out where the manufacture hid this or that on a random year make and model ohhhh wait this was manufactured at the Canadian factory so it's different than the US factory slightly (like my Impala grumble) and not actually pictured in the manual.
>To replace their current fleet of sub-contracted drivers with self-driving cars is going to cost billions and billions of dollars. Uber currently has something like $7B on hand and is burning through nearly a billion a quarter.
Yup, and they're not going to abruptly stop allowing human drivers. They'll enter one market, then two markets, then three markets and as above, they'll be saving money in some that have minimum pay rates required by law for drivers which will allow them to relatively quickly recover their costs without changing pricing at all and many customers will save money because they won't feel they need to tip.
>and is burning through nearly a billion a quarter.
Yeah, radical change often costs a good deal of money before it becomes profitable. Just like exploration, sailing to the new world was a rather dangerous and expensive endeavor until trade routes were finally established for example.
One or both companies may very well fail before they achieve success as autonomous transportation companies, but that's absolutely what they are trying to be.
The UX is such a minuscule part of the business compared to the logistical operations that Uber/Lyft don't have. (Remember, Apple always had the UX. What made it rich is the supply chain, which is why Tim Cook is CEO.)
I'm not sure why the downvotes, you're basically correct. I really don't care much whether it's a person or a computer driving me around. What I care about is the price.
People seem to implicitly assume that autonomous driving will make getting driven around really cheap. But all you're really doing is taking a ~minimum wage driver out of the loop. A good starting point for costs is the $0.50ish/mile IRS mileage deduction which is maybe about half Lyft/Uber pricing today. That's a significant difference but I'm not sure it's a radically alter everyone's behavior difference.
They don't need to increase prices in established markets because they are already profitable in those. So whenever they run out of cities deemed viable to expand into (and they will because the number of cities in the world is obviously finite), then they will no longer need to subsidize growth costs in new cities via profits from established cities.
The main difference between Uber and Lyft is that Uber is already in a lot more cities than Lyft, so if Lyft wants out of the subsidizing game, they either have to settle for being in less cities or somehow significantly outdo Uber in terms of growth cost efficiency when penetrating new cities where Uber/others already operate.
It seems like Lyft makes about the same loss as Uber overall percentage wise. So, if both IPO they will have to increase prices accordingly. At this point it might be better for one to back off from IPO, that would allow to further diversify business and find other more profitable ventures long term.
As many others here have noted (and other disputed) there doesn't seem to be an actual viable business model here. So there would be a distinct first mover advantage for getting in your IPO in, lest the other one tank the market for you as it starts to hit reality, such as actually having to have a sustainable business no longer fueled almost exclusively by investor money.
First mover has to operate in the open while the private company can continue with increased flexibility that comes from a lack of disclosure. A question I have for Lyft is why now given the, seeming, lack of a viable biz model?
I think you basically answered your own question. If you assume there really is no viable business model--and isn't going to be one--why wouldn't you take what you can while the taking is good before the suckers, excuse me investors, realize it is all smoke and mirrors? Waiting presupposes either a better exit in some other form (i.e. acquisition) or improving financials/other business metrics that let you price higher for an IPO.
ADDED: And as maxxxxx wrote, it seems as if there are a lot of risks for the general economic picture and I'd expect both Lyft and Uber to be hit pretty hard in any significant downturn as they're luxury goods to at least some degree.
I’ll invest in Lyft when it IPOs if the valuation is fair (unlike Snapchat’s IPO lol) Every dollar Lyft raises in the IPO is an extra dollar it can use against Uber. Sometimes, the one with the biggest warchest wins.
I feel that the time to file for IPO for Lyft and Uber is running out. If Waymo One starts getting popular and gets more and more into news cycle, valuations of both of these companies will be considered based on the progress of self driving cars.
I'm curious what a company like Lyft (or any number of companies that have grown rapidly due to funding but still seem like they have some kind of sustainable business model) how they might look as democratically owned companies (basically a giant coop). Technically their is no reason that the entire thing can't be owned directly by the drivers, software developers and legal people with profit sharing and extreme voting. The social scaffolding is still a radical idea and the cultural assumptions are not crystalized like dictatorial businesses , but as a general idea it's hard for me not to "feel" like the democratically owned equivilent to many of these "VC funded" companies is not the the disruption model to the disruption model. I picture companies like lyft getting off the ground due to huge influx of investor money, experimenting, feng shuing out any uneeded clutter and then some leaner, more organic democratically-owned alternative gradually becoming more of a norm after the previous iteration did all the experimental work. I kind of hope that happens - at least as an experiment. If it were successful it would be funny....and neat. I can dream. :/
Don't they? The app experience certainly feels like hailing. The app provides a virtual line of sight that shows me a map of my surroundings with nearby available vehicles, when I make a booking I can track the vehicle as it approaches my location.
If we learned anything from SNAP, it's that investors are still greedy. APPF is a good example of a recent IPO that has done very well since its IPO date. IMHO, hyped up companies like Lyft have all the value sucked out before the IPO.
It's becoming more common now with the 2012 JOBs act, which allows companies to qualify as an Emerging Growth Company (EGC). Companies can then file confidentially and enjoy some other benefits that lower the IPO barrier. Here's info from the SEC about the confidential submission process . $1B revenue is usually the bar to say under to qualify. I built an app to help startups assess their IPO readiness . If you look under Legal & Compliance -> SEC -> EGC qualification tracking, it has a bunch of details.
Scramble scramble! Quick, before people realize ridesharing is completely unsustainable without self driving to take out the cost of human drivers, except that Lyft is so far behind in the self driving race that they basically have no way to ever catch up.
Absolutely: A major one is that you can skirt all kinds of financial disclosure laws that apply to public companies. The world doesn't get to know your volume, your profit margin, or which of your divisions makes most if its money. This means your competition has a lot more trouble competing with you than if you have to provide public quarterly statements. I have seen examples of well run companies that just happened to be private, and then see industry reports that made hilariously wrong guesses regarding those key metrics that the competition would love to know.
At the same time, it's far harder to provide great compensation to your employees if they can't sell their shares in the market, and at some point, your investors might be screaming for liquidity. But staying private as long as you can get away with is a good idea: It's just that few companies planning to be huge can.
Being private means the company doesn't have to follow compliance rules strictly. A good example of that is accounting rules.
There are tons of companies out there which show non-GAAP profitability. But non-GAAP actually means companies can ignore stuff like ESOPs etc to create their balance sheets.
When it comes to creating GAAP reports these same companies tend to be unprofitable by a large margin.
Then there is the flip side too. Even if the company is profitable but not profitable enough. Let's say a hypothetical $1 in profit. And then company needs more than $1 to keep it afloat but no investor is interested. Then they have two options - raise debt or go public and raise money. Out of the two going public is slightly better.
I'm not sure it's a commodity. Riders are not necessarily willing to wait indefinitely for the driver. Economies of scale is a factor in ride hailing. Perhaps a ride hailing company with fewer drivers can out perform a larger peer through predictive analysis, putting drivers in the right areas ahead of time. That likely amounts to a neat trick when you think about the scale of Uber and Lyft.
Uber has had to close down operations in several countries as well as several cities here in U.S.. Each time losing investors hard earned dollars. Lyft is most definitely, as others mentioned, in the slipstream; benefiting from Ubers successes and failures.
Lyft is a brand people respect and love and Uber not so much; at least not here in the U.S.
Lyft also has partnered with Google's Waymo. I think that partnership is limited to testing autonomous ride share but Google is also an investor in Lyft. A future acquisition or partnership doesn't seem out of the question. I see room for a few players to own the market and if I were an investor I'd go with Lyft.