FRANCISCO ó Itís Saturday night in San Franciscoís
Mission District. Two women stand outside a dive bar in
the winter chill, looking at their phones. Two Toyota
Priuses pull up to the sidewalk.
you Kelly?" a driver yells to the taller of the
she says, glancing up from her phone.
Kelly!" the other woman calls out.
Kelly, Iím your Uber!"
taller woman walks to the door of the other Prius.
you my Lyft?"
Rachel?" the driver says.
women climb into their respective rides. The Priuses
year ago, Uber dominated San Francisco. As in many
cities, "Uber" had become a verb for
ride-hailing apps. But today, youíre as likely to spot
a Lyft as an Uber in this city.
who thought on-demand transportation was a
winner-take-all market ó that Uber would crush
competitors in ride-hailing the way Facebook crushed
competitors in social media ó are being forced to
change their tune.
turns out that the winner-take-all phenomenon that
drives so much of the Internet ó a theory also known
as "network effects" ó may not be as
relevant to the transportation industry.
month, struggling ride-hailing company called Sidecar
pulled out of the ride-hailing business. But Lyftís
business continues to improve, and it remains an
investment magnet. Earlier this month, the company
announced a new $1 billion funding round, led by General
Motors, which invested $500 million.
shedding its clownmobile front-grille mustache in favor
of a more discreet windshield sticker a year ago, Lyft,
ride-hailingís second-largest company, has captured 40
percent market share in San Francisco, and in newer
markets, such as Austin, Texas, it nearly matches Uber
with 45 percent market share. Lyft declined to reveal
its market share in other markets.
January 2014 to January 2015, the company grew fivefold
in rides and revenue. Itís on track for $1 billion in
gross revenue by October this year.
isnít to say Lyft is about to eclipse Uber.
is valued at $5.5 billion. Uberís most recent
valuation is $62.5 billion. Lyft has 315,000 drivers.
Uber has more than 400,000 in the U.S. alone. Uber is
available in 68 countries. Lyft operates only in the
U.S.; its international expansion into Asia through
partnerships isnít due to begin until next year.
the gulf in resources between the industryís number
one and two, Lyft continues to grow.
thought that this was a winner-takes-all market, and I
think everyoneís realized thatís not the case,"
said Lyftís co-founder and president, John Zimmer.
got it wrong, he believes, because winner takes all is
such a common scenario in tech. In social media,
Facebook came out on top because of the network effect:
The more of your friends are on it, the better it gets.
That naturally lends itself to one player.
in a transportation business, specifically our business,
there are very strong network effects, but only to a
point," Zimmer said.
it was thought that whichever service had more drivers
would also have more passengers; more drivers meant
shorter wait times, more passengers meant more fares. A
monopoly would emerge.
once you hit three minute pickup times, thereís no
benefit to having more people on the network,"
fact, according to economist W. Brian Arthur, a prime
theoretician behind network effects, if all services are
equal, then network effects may not be so advantageous.
example, Uber might have a strong network advantage in
an area, but if Lyft comes in and offers a much better
product, it can dislodge a company, network effects and
all," Arthur said.
effects are a dynamic idea. Theyíre not frozen in
time. They do exist, but it doesnít mean someone canít
come along and just leapfrog that."
likes to compare the dynamic between Uber and Lyft to
AT&T and Verizon. When both cell networks hit three
bars of coverage, people start to see them as
equivalent, and base their spending decisions on other
factors, such as brand values and customer experience.
what Lyft has spent the last year doing: building the
ride-hailing equivalent of cell towers to get pickup
times down to three minutes or less.
that out of the way, itís out to capture market share,
by attracting passengers who want an alternative to Uber
and tapping into the ocean of people who have never used
a ride-hailing service.
its international expansion, Lyft has partnered with
incumbents in markets such as China, India and Southeast
Asia, so when U.S. Lyft customers open the app while
overseas, they can hail a ride from local operators such
as Didi Kuaidi (China) and Ola (India), and vice versa.
company will tackle each geography differently.
Lyftís domestic strategy interests big investors the
most, with activist billionaire Carl Icahn investing
$100 million in the San Francisco company, telling the
New York Times in May: "Thereís room for two in
Weiss, a Lyft board member and partner at venture
capital firm Andreessen Horowitz, echoed a similar
sentiment, comparing the on-demand transportation market
to airlines, with the potential for it to be even
are probably 10 to 12 airlines that have
multibillion-dollar valuations, and every country has
one or two flagship carriers," Weiss said. "We
always bet the market is humongous."
STORY CAN END HERE)
big we think the on-demand and autonomous transportation
industry will be, investors say think bigger. The U.S.
logistics and transportation industry totaled $1.33
trillion, or 8.5 percent of annual gross domestic
product, in 2012, and it has only grown with the
economy, according to the Department of Commerce.
itís unclear how much market share a company would
need to be financially successful ó Uber is, after
all, only 5 years old; Lyft is 3 ó thereís a big
chunk of the transportation pie up for grabs.
STORY CAN END HERE)
is why the on-demand companies are knuckling down now.
has spent $1 billion in China and India to expand its
business, and was the first on-demand transportation
service in hundreds of U.S. cities. Leaked financial
documents show Lyft spent $96.1 million on marketing in
the first half of 2015, more than twice its net revenue
in the same period.
the guidance of marketing chief Kira Wampler, the
company underwent a brand redesign in early 2015,
scrubbing clean traces of the fluffy mustache in favor
of a sleeker, more sophisticated look. It covered San
Francisco with billboards, bus shelter ads and posters
plastered down the sides of buildings. The Lyft app
recently underwent a complete redesign to offer users
more transparency and predictability in its ride
its message to potential customers? "We treat you
passengers anecdotally have had both great and
nightmarish experiences with Lyft and Uber drivers, Lyft
believes that because its platforms enable customers to
tip drivers (Uberís app doesnít have such a
feature), drivers are, in theory, incentivized to offer
a better service.
Lyft launched, it also encouraged passengers to ride in
the front and to greet drivers with a fist bump. And
though it no longer stipulates how passengers should
ride, Wampler believes the culture fostered in the days
of the fist bump has stuck around, resulting in a more
social and fun experience.
to Weiss, Lyft has cornered the millennial market, a
kind of Southwest Airlines (fun, friendly and social) to
Uberís Virgin America (more serious and luxurious).
Uber first positioned itself with its black town cars as
a service for professionals and UberX as a service for
everyone, Lyft has capitalized on a segment of the
market that isnít satisfied with the Uber experience,
said Hugh Tallents, partner at brand strategy firm CG42.
has in many ways created the category, and with that
comes some serious frustrations that Lyft is looking to
solve," Tallents said.
for example, has a cap on its surge pricing, whereas
Uber fares have been known to increase dramatically
during busy periods, a frustration for many passengers.
Lyft has also created the perception of better driver
advocacy, with the ability for riders to tip, and by
encouraging passengers to interact with the driver,
makes it a much more human interaction, and I think
people have been craving that," he said.
Lyft can capture 75 percent of the millennial crowd, it
will be in a good position for the long term, even if
Uber continues to dwarf it, Weiss said.
is a market thatís going to float at these two
ships," he said of Uber and Lyft. "But where
Uber stands to lose is the millennial market. Lyft is
too consistent. They service that market too well."